Understanding SCI Taxes
Originally posted on & updated on 15th October, 2024
A Société Civile Immobilière (SCI) is a French company created by at least two individuals acquiring one or more real estate assets together. Its purpose is to hold and administer real estate assets for the benefit of the shareholders.
SCIs are commonly used in France. They simplify the administration of jointly owned assets and serve as estate planning vehicles.
French Tax Treatment
The tax treatment of an SCI will depend on whether it is tax-transparent or not.
A SCI is treated as transparent where it simply holds property or where the property is rented out as unfurnished. Transparent means that, for tax purposes, you look through the company and then tax the individual shareholders on any underlying income and capital gains.
The tax implications are broadly the same as if the property were held directly:
- Sale of the property - shareholders pay capital gains tax (CGT) at up to 25% plus social charges at 17.2% (7.5% for non-residents subject to conditions).
- Rental income - taxed at the scale rates of income tax (up to 45%) plus social charges at 17.2% or 7.5%.
- A number of reliefs are available, such as simplified accounting methods, CGT main home exemption, and CGT taper relief (CGT is reduced for each year of ownership after the fifth, and there is no tax on sale after 30 years).
Taxpayers can, however, elect for the SCI to not be treated as tax transparent and be subject to corporation tax instead. Also, if the property is rented out as furnished, the SCI will automatically lose its tax transparency and the income and capital gains will become liable to corporation tax.
Corporation tax regime has the following implications:
- Rental income and capital gains are subject to corporation tax at 15% on profits up to €38,120 and charged at 25% thereafter.
- Further tax is payable on profit distributions to the shareholders (taxed as dividends, 30% for French resident shareholders, and up to 39.35% for UK resident shareholders).
- CGT reliefs are not available (including taper relief).
- The accounting requirements when corporation tax applies are complex and the accountancy fees tend to be higher.
The corporation tax regime is generally considered by those who want to develop a rental property business, as immediate taxation can be limited to corporation tax when profits are not distributed. As corporation tax is lower than income tax and social charges, this structure can be tax efficient if profits are reinvested in the business. For second homeowners with occasional renting, transparent SCIs are generally more appropriate.
UK Tax Treatment
UK residents are subject to UK taxation on their worldwide capital gains and income. This includes SCI income and capital gains.
HMRC treat SCIs as non-transparent for UK tax purposes. Accordingly, SCIs are generally subject to tax on their profits (income and capital gains) in France, subject to French income tax or corporation tax as described above, and UK resident shareholders are taxed in the UK on the distributions they receive from the company (at up to 39.35%), with no tax credit for the tax paid by the SCI.
The UK tax treatment of a SCI often results in double taxation and can be inefficient for tax purposes.
Fortunately, there are several ways to mitigate double taxation. For example, instead of selling the property, shareholders may sell the SCI shares instead. In this scenario, the capital gain is treated as personal gain in both France and the UK, and the UK will credit the tax paid in France.
For Expert Tax Advice
Our UK-based French legal experts specialise in taxation, wealth tax, succession, etc… They have extensive knowledge of the French tax system. Contact François Mouniélou at RWK Goodman. If you are just starting your search, we recommend you familiar yourself with the buying process and register to receive our newsletters and property alerts.
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