Société Civile Immobilière (SCI) is a popular legal structure for managing and transferring property assets. However, it is not without its drawbacks. Before setting up an SCI, it is vital to understand the challenges it can bring.
We will begin by looking at the various disadvantages of holding property in an SCI, including responsibilities, administrative obligations and tax constraints. We will then look more specifically at the disadvantages of using an SCI to hold a principal residence, a set-up that has some notable legal and tax peculiarities.
I. The disadvantages of holding a property via an SCI
1. Partners' unlimited liability: a risk not to be underestimated
In an SCI, the partners are liable for the company's debts. This liability is :
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Indefinite: creditors may turn to the partners' personal assets if the SCI's assets are insufficient.
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Proportional: each partner contributes to the debts in proportion to his share in the company.
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Subsidiary: personal assets are only committed once the SCI's resources have been exhausted.
This mechanism exposes the partners to significant financial risks in the event of poor management or high levels of debt.
2. Restrictive administrative and accounting obligations
Setting up a non-trading property company means agreeing to comply with strict administrative formalities:
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Annual general meetings, with minutes drawn up.
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Keeping accounts, especially if the SCI is subject to corporation tax (IS). This may require the services of a chartered accountant, increasing management costs.
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Reporting profits to the tax authorities every year, regardless of the size of the SCI.
These obligations represent a workload and costs that it is important to take into account before getting started.
3. Set-up and running costs
The disadvantages of setting up a non-trading property company include initial and recurring costs:
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The cost of drawing up the articles of association, often carried out by a notary or lawyer to avoid disputes between partners.
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The compulsory publication of a legal notice, which costs between €181 and €217, depending on the département.
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Regular management costs, such as updating the articles of association in the event of any changes (transfer of shares, change of manager, etc.).
4. Restrictions on certain activities, such as letting furnished accommodation
An SCI is designed for civil activities, such as rental management. Commercial activities, such as buy-to-let or regular furnished lettings, may result in tax requalification, with compulsory taxation at corporation tax (IS), which is often less advantageous in the long term.
If you want to invest for short-term rental purposes, such as Airbnb, the SCI should be avoided. It can only be used for unfurnished rentals.
5 Restrictions on certain sources of finance
An SCI is designed for civil activities, such as rental management. Commercial activities, such as buying and selling or regular furnished lettings, may be incompatible with certain loans, such as the zero-rate loan or the advantages associated with PEL/CEL savings plans, even for a family SCI.
6. Complexity of selling and transferring shares
Managing shares in an SCI can be complex:
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Any transfer must be approved by the other partners or by a majority defined in the Articles of Association.
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In the event of the death of a shareholder, transferring the shares to the heirs may require lengthy and costly procedures.
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Amending the Articles of Association entails administrative and legal costs.
7. Tax disadvantages
The tax choices made by a non-trading property company can be costly:
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Opting for corporation tax allows the property to be depreciated, but complicates the management of capital gains on resale.
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Distributing profits in the form of dividends means double taxation: at the level of the SCI and at the level of the partners.
II. The disadvantages of holding a principal residence through a non-trading property company (SCI)
Owning your principal residence through a company (SCI, SARL, etc.) can have a number of disadvantages, both civil and tax, compared with owning it directly. Here are the main aspects to consider:
1. Loss of protection for the family home
Unlike direct ownership, where the non-owner spouse benefits from specific protection (C. civ. art. 215, al. 3), this guarantee does not apply in the context of an SCI. If only one of the spouses is a partner, the non-partner spouse has no occupancy rights and cannot oppose the sale of the family home.
2. Loss of Life and Temporary Rights
In the event of death, the surviving spouse loses the temporary and lifetime rights of enjoyment provided for principal residences held directly. These rights may be reinstated if a lease has been entered into between the company and the spouses.
3. Absence of certain tax allowances
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Inheritance tax: No 20% allowance on the principal residence occupied as a principal residence (CGI art. 764 bis).
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IFI: The 30% allowance for principal residence does not apply (CGI art. 973).
4. Exemption for capital gains on property
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SCI subject to income tax: The exemption applies if the residence is made available free of charge to an occupying partner. However, this exemption does not apply if the property is made available at a cost.
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SCI subject to corporation tax: No exemption is possible and the capital gain is subject to corporation tax.
5. Inapplicable borrower protection schemes
A company does not benefit from the protections granted to individuals for property loans (Scrivener Act, cooling-off periods, suspension in the case of VEFA, etc.).
6. Restrictions on Savings and Loans
Holding a principal residence through a company prevents :
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Early release of savings plans (PERCO, PEE, PER);
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Taking out a home savings loan, except in specific cases (SCI d'attribution).
7. Unseizability Not Applicable
Sole traders lose the protection of their principal residence from their business creditors if it is held by a company.
Conclusion
Holding property through an SCI, and more specifically a principal residence, requires careful thought and appropriate support. Our independent estate agents are on hand to guide you through your plans and answer any questions you may have, so that you can choose the structure that best suits your needs and objectives.
