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Office Notarial de Baillargues
340 rue des Écoles
34670 BAILLARGUES
Tel. (33) 04 67 87 66 15
Fax (33) 04 67 70 06 51
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| Using a French holding company to buy your property in France can seem like an attractive option, but there may be heavy tax consequences. ONB’s legal specialists can advise you.
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Holding companies for French properties |
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A question...
An Englishman, Mr Charles Prince, wants to buy a house in the south of France but doesn’t want French inheritance law to apply to the property if he dies. He wants his wife, Pamela Anderson, to inherit the house rather than his children. He has heard that he do this through a French property holding company (SCI). He asks a notary for advice.
The notary replies...
French properties are subject to French inheritance law, even when they’re owned by foreigners. Property inheritance laws in France are very different from those in the UK. See our article on this subject for more information : Who will inherit your property in France ?
On the other hand, “movable property” (such as shares, goods and chattels) are subject to the inheritance laws of the country where the deceased was domiciled when he/she died.
In France, you can own real estate either directly, or indirectly as shares in a property holding company known as an SCI (société civile immobilière). You can set up an SCI when you buy your house in the south of France, or you can buy the shares representing a property in an existing SCI.
Then, if you die while living in England, the property will be inherited according to English law, which doesn’t give automatic inheritance rights to relatives other than the surviving spouse.
From the point of view of civil law, you could draw up a will leaving the shares (i.e. the house) to your spouse, and so avoid French inheritance laws.
The tax pitfalls
However, you should be aware of the tax problems. The Franco-British convention on inheritance taxes of 21 June 1963 states that the shares of an SCI are liable for tax in the country where the property is “exploited” – i.e. in France – so there will be French taxes to pay.
In addition, the UK Inland Revenue classes an SCI as a joint stock company and regards the property as a “benefit in kind” to the directors. This benefit is therefore taxed as income in the UK. The amount of tax is based on a notional rental income which can exceed the actual market rental value of the property. (Income and Corporation Taxes Act 1988, articles 145 and 146.)
Because of these two heavy tax consequences, you would be better advised to find a different solution to an SCI, or at least to keep the SCI option for a property of low value, where the UK tax on the supposed rental income will not be so high.
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