Are you in a relationship or a family and considering purchasing your primary residence? The Société Civile Immobilière (SCI) could be the key to your real estate project. Once reserved for large real estate management projects, the SCI is now accessible to anyone looking to optimize their assets while benefiting from tax advantages.
What is an SCI?
The Société Civile Immobilière (SCI) is a legal structure that allows multiple people to jointly own and manage real estate. Specifically, the SCI is a legal entity distinct from its partners, who each hold shares according to their initial contribution.
The main advantage of an SCI lies in the simplicity of asset management. For example, parents can set up an SCI to transfer a house to their children. Instead of directly bequeathing the property, they gradually transfer their shares, which avoids the complications of joint ownership.
The creation of an SCI requires at least two partners. These can be family members, friends, or business partners. The articles of the SCI must specify the distribution of shares, decision-making procedures, and management rules. Once the articles are drafted, they must be registered, and the SCI must be registered with the Commercial and Companies Register (RCS).
How to create an SCI for your primary residence?
Contributing an existing property to an SCI
If the partners already own a property they wish to include in an SCI, they can make an in-kind contribution. This operation involves transferring ownership of the property to the SCI in exchange for shares. The partners must assess the value of the contributed property, as this real estate valuation will be included in the articles and have tax implications.
Creating an SCI before purchasing the property
For those who do not yet own a primary residence, it is possible to create an SCI before acquiring the property. In this scenario, the SCI is created from scratch, the articles are drafted and registered, and then the company borrows the funds needed to purchase the property. The SCI becomes the owner of the property upon purchase.
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The advantages of buying your primary residence via an SCI
Personalized distribution of assets
When you buy a house through an SCI, you can determine the distribution of shares in a flexible and personalized manner. This is particularly advantageous for married couples under the community property regime who desire a different distribution of ownership.
Protection of the surviving spouse in case of death
Creating an SCI allows for better protection of the surviving spouse. Each spouse holds the usufruct of the other’s shares and the bare ownership of their own shares. In the event of death, the surviving spouse automatically receives full ownership of the shares.
Tax benefits
The SCI offers several tax advantages:
- Exemption from transfer taxes: Donations of SCI shares may be exempt from transfer taxes if the donation is less than €100,000 and occurs every 15 years.
- Exemption from capital gains tax: If the SCI is subject to income tax (IR) and the occupants do not pay rent to the SCI, the capital gains realized upon the sale of the property may be exempt from tax.
- Tax reduction in case of property deficit: Property deficits generated by the SCI’s expenses can be deducted from the partners’ income, within certain limits, reducing their income tax.
The disadvantages of buying your primary residence via an SCI
Despite its many advantages, buying a house through an SCI for personal use also has some drawbacks:
Administrative formalities and creation costs
The creation of an SCI involves numerous administrative formalities. It is necessary to draft the articles, register them, and enroll the company in the Commercial and Companies Register (RCS). On average, the costs of creating an SCI can amount to around €1,500 or more.
Management and accounting obligations
Once created, the SCI must adhere to strict accounting and management obligations. This includes maintaining regular accounts, holding annual general meetings, and drafting minutes. Even if the SCI does not have commercial activities, it must also report its income and expenses.
Tax risks
The tax optimization offered by the SCI is not without risks. The tax authorities may consider certain operations abusive, especially if they aim solely to reduce the tax payable. Moreover, when the primary residence is owned by an SCI, the 30% allowance on the property’s value is not applicable for calculating the Wealth Tax on Real Estate (IFI).
Before embarking on buying a house through an SCI to live in, it is important to carefully evaluate these aspects and consult professionals to secure your real estate investment.
