French Wealth Tax – Main residence and SCIs
French law is a highly specialised area and you should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article is for general information and does not constitute investment advice. Always consult an IFA.
Wealth Tax (ISF) in France is assessed on the value of individual taxpayers assets as at the 1st January each year. In the case of a property which is the tax payers principle residence there is a reduction in the deemed market value of 30% which is a useful saving and may take the taxpayer out of ISF altogether. This usually will not apply to holiday homes of UK residents as the French holiday home will not be their main residence. However if a UK resident say retires to France then the 30% reduction should apply.
What is not however often appreciated is that the 30% reduction does not apply if the property is owned via an SCI (Société Civile Immobilière). These are French tax transparent companies which are sometimes used as an alternative to owning a property directly. Typically the shares in the SCI are owned by the occupiers of the property. Article 885 S of the French Tax Code which allows the 30% deduction requires the “owner” of the property to occupy it as “his main residence”.
As the SCI will own the property in its own right the person who in turn owns all the shares in the SCI is not the owner of the property. The individual cannot be the owner occupier of the property because the SCI is the owner. The French tax administration is very clear in its position (BOI-PAT-ISF-30-50-10, no 120) that the 30% deduction cannot apply to SCI owned properties.
It may nonetheless be possible to argue that because there is less of a market to buy SCI shares there is some discount in the valuation of SCI shares though this will be nothing like 30%. This is a trap for UK residents planning in due course to move to France who are being encouraged to buy with an SCI. The authors view is to avoid the use of an SCI as a purchase vehicle, unless there is a compelling reason to use one.