Buying a property in France through a limited company (which in turn could be owned by an offshore company) has certain advantages and may save you capital gains and inheritance tax.
There are essentially two options: buying through a limited liability company in your own country, e.g. a Limited Liability Partnership in the UK, and buying through a French company such as a société civile immobilière.
Other options are to purchase a property through a French trading company (which may be advantageous if you plan to generate an income, although set-up costs are high) or a foreign or offshore company. Setting up an offshore company can cost around €1,000 plus a similar annual ‘maintenance’ fee. Buying a French property through a foreign or offshore company can result in being hit by various punitive French taxes and it may also incur high management fees.
Further information and advice (in English) regarding house purchase through a company can be obtained from specialist financial advisers with experience of French regulations, such as Anthony & Cie (01 53 43 01 01 or 04 93 65 32 23, http://www.antco.com ).
Tip: Before buying through an SCI or any other company, it’s important to weigh up the long-term advantages and disadvantages and to obtain expert legal advice.
Buying through an SCI can be beneficial to non-residents, particularly when two or more people or families are buying jointly or when you wish to circumvent French forced inheritance laws, as shares in the company are treated under French law as ‘movable’ rather than (as property) ‘immovable’ assets. However, it may only be worthwhile when a large sum is being invested (e.g. €500,000 or more) or when the buyer has a complicated family or inheritance situation, e.g. an elderly person who’s planning to leave a property to a non-relative. Owning French property through an SCI is of little or no benefit to owners resident in France, as many of the advantages don’t apply.
An SCI is a fully incorporated company with a registered office in France, which can be the property itself. The SCI owns the property (not the individuals), and the family members become shareholders in the company. The home owner(s) retain a majority share in the SCI, thus giving them control of the company, while the remaining shares can be divided up according to their wishes. As with any property registration, you should consider carefully how you want the shares allocated, as this can affect your tax situation and inheritance. When a number of foreigners are buying a property together, the SCI can be owned by a company in their home country, thus allowing legal disputes to be dealt with under local law.
The principal advantages of an SCI are that its shares can be simply transferred to new owners and, after the company has been established for three years, stamp duty is lower than with direct transfers of property. On the death of an owner, shares in an SCI are treated as movable assets and can be bequeathed in accordance with the owner’s domicile, thus avoiding the restrictions of French succession law. In the case of a purchase by a couple, the SCI should incorporate a clause tontine. The use of an SCI requires minimal annual bookkeeping, although certain formalities (e.g. the holding of AGMs) must be observed. An SCI is a property holding company and cannot trade, although you will be permitted to let the property, as letting isn’t considered a commercial activity in France.
There may also be disadvantages to buying through an SCI, apart from the set-up cost (see below) and annual formalities such as an AGM. French inheritance tax applies to the transfer of shares in an SCI upon death (assuming that the French property represents at least 50 per cent of the SCI’s assets). A property owned under an SCI is also subject to French capital gains tax and, if you’re a UK citizen, the property may be regarded as a ‘benefit in kind’, irrespective of how long you spend in it, in which case you would be taxed in the UK at 7 per cent of its market value. Note also that if you let a property owned by an SCI, it may be necessary to pay a higher rate of tax on the rental income. The value of your shares in an SCI would count as assets with regard to French wealth tax. Another potential disadvantage is that an SCI’s constitution must be in French.
If you plan to own a property through an SCI, it should be done at the outset, as it will be much more expensive to do it later (e.g. attracting transfer tax at 4.89 per cent plus notaire’s fees). The costs of establishing an SCI are around €1,500 to €3,000 in addition to the normal fees. You should also ensure that you declare the company to the tax authorites immediately; otherwise, you could face a 3 per cent tax on foreign companies owning property in France.
British buyers might want to investigate the possibility of buying through a limited liability partnership (LLP), a form of business organisation combining elements of a partnership and a corporation in which partners have limited liability but are entitled to manage the business directly. These have the advantage over an SCI, which the Inland Revenue regards as a company and taxes accordingly. However, there may be a number of difficulties to overcome. LLPs aren’t officially recognised in France, although in most cases they will be treated as an SCI – check with the local tax office. For this reason, notaires may be reluctant to deal with an LLP, although LLPs are recognised by the French Land Registry as a valid property ownership entity and in any case notaires are obliged to recognise any corporate body valid in any other EU country. French banks are also unfamiliar with LLPs but will normally ‘bend’ on receipt of confirmation from a notaire that they’re acceptable entities.
This article is an extract from Buying a home in France. Click here to get a copy now.