Buying a property in France has traditionnaly been a topic of interest for UK citizens. Paradoxically, our uncertain post-Brexit / Covid-19 context seems to have renewed this desire for expatriation. Though it still exists, the classic retirement in Nouvelle Aquitaine plan has been enriched with projects of a new kind, such as complete career shifts or work from abroad. It would nonetheless be lying to pretend that nothing has changed and property acquisition can be pursued just like before.
In this article, we describe a great avenue for the joint purchase of properties in France. This avenue is of singular interest, considering the rather unstable world we have entered. That is, buying a property in France through a société civile immobilière (SCI). Why should you acquire or transfer French properties using this specific corporate vehicle?
Along with « indivision » (the joint ownership regime whereby a property, divided into parts, is jointly and directly owned by several persons), the SCI is the most common modality for buying a property in France. Basically, it is a company (société) of a non-commercial nature (civile), which purpose is the ownership and management of real estate (immobilière). You will find below the main reasons why it can be helpful.
1. Assets are owned in “pleine propriété” (undivided ownership)
When buying a property in France through a SCI, the ownership is not split-up between several persons. On the contrary, the company is said to have property in full (“pleine propriété”) over its assets. This means that, e.g. in the context of a succession, there will be no need to address nor resolve the fate of a divided property (which can lead to mandatory sales in case of disagreement). The ownership of the property per say will hardly be affected by anything. The articles of associations can even protect the founders from the death of their counterpart(s), by granting them a right to buy the de cujus’ shares, so that the surviving founder(s) remain the only one(s) with direct control over the property.
2. Property transfers are greatly facilitated
Property transfers are much easier when a SCI has been set up. Indeed, in-order-to transfer the property, the shareholders only have to transfer their shares within the company. This does not require a notarial deed (making the transfer cheaper). In essence, the seller and the buyer execute a contract and amend the articles of association.
Sales of shares can be total (all shareholders sell their shares) or partial (only one or several shareholder(s) do so). Shareholders are of course entitled to sell a fraction only of their shares, which gives them more flexibility and allows for a better liquidity of the property.
3. Taxation over French properties can be optimised
Selling shares of a SCI is subject to an overall weaker taxation than the ordinary direct sale of real estate properties. Indeed, the tax base is the profit made in the sale of shares, not in the sale of the property. This allows for a better optimisation, as the debts of the company (a loan for example) can be taken into account when determining the value of the shares. Like in a direct property sale, the shareholder can benefit from tax deductions corresponding to duration of possession thresholds.
In principle, SCIs are « transparent » vehicles from a tax perspective. This means that each shareholder will be personally taxed on his/her income for the profits made through the company. As long as the estate does not excede a certain valeur, there will be no taxation if the activity of the SCI is merely to own the property without making profits of any kind. However, as the company develops and acquires more assets, its taxation can be further optimised by opting for a subjection to corporate income tax (IS).
4. SCIs offer a fine balance between flexibility and control
SCIs are primarily designed as family companies. They are thus very private, in the sense that everything is done to preserve the control of the shareholders over whom enters the company. It is indeed mandatory for every sale of shares (including amongst shareholders, unless provided otherwise in the by-laws) to be accepted by the other shareholders.
Holding property through a SCI thus constitutes a fine balance between flexibility (the possibility to liquidate) and control (keep the real estate within a closed circle).
5. SCIs are perfect for buying a property in France and manage or develop an estate
The SCI is great for estate management. It helps to mutualise the costs inherent to owning properties (repairs, local tax, neighbour disputes…), to distribute profits (rentals, added value in sales…), and channel decision-taking (signing of leases, quotations for works…).
The SCI is also a great estate development tool. It is the vehicle designed for buying properties in France. The fact that it allows several people to gather investments while sharing a liability to debts constitutes a real acquisition leverage. This can greatly facilitate financings: whether by obtaining more favourable loan conditions or facilitating the taking of securities. Besides, the assets of a SCI can quickly rise, which constitutes an incentive for further investors to join-in or additional acquisitions to be made.
6. SCIs offer a relative liability protection to shareholders
Like most corporate vehicles, the SCI has a distinct legal identity from that of its shareholders. This means that creditors will have to seek the liability of the company first, before turning against its individual shareholders. However, the SCI is not a limited company: shareholders are said to be indefinitely liable for losses, beyond their contributions. This means that, when the SCI is not capable of meeting its obligations, creditors are entitled to seek the recovery of their claims against the shareholders. Nonetheless, unlike most French equivalents of partnerships, this individual liability is not joint and several. “Indefinitely” only means that shareholders do engage their own patrimony, but only to the extent of their equity proportion within the company. Creditors will thus have to seek recovery against all shareholders, not one only.
The risk of individual liability is usually mitigated by the taking of securities over the relevant property, such as mortgages. Much can be done to prevent the individual estates of the shareholders to be engaged.
7. Inheritance and transmission of French properties can be tailored
As family companies, SCIs help their founders tailor the transmission of their real estate assets. It is quite easy to progressively transmit shares within the company, in anticipation of inheritance tax. The transferor can even benefit from tax deductions when the transfers of shares (up to a certain value) to their heirs are made periodically, every 15 years.
It is also possible to dismember the shares to organise or anticipate difficult situations. For example, so that the use and benefit of the property (usufruit), is preserved for the parents, but the disposal rights over it (nue-propriété) are transferred to the heirs. Some crossed dismemberment mechanisms can also be used to preserve the use of the property by a non-married cohabitant after his/her life partner has passed away.
8. The secretarial burden in SCIs is very moderate
Unlike commercial companies, SCIs are exclusively governed by the Code civil, not the Code du commerce, for matters relating to their creation and functioning. This implies a rather simplified functioning, until the company grows or engages in commercial activities: no filing of annual accounts, a large freedom in the designation of the representatives, a minimum of two founders to incorporate, and a rather simplified accounting.
This undoubtedly adds to the flexibility and ease of management offered by the SCI. The goal here is of course to simplify and optimise real estate management, not to make it over-complicated.