A real estate investment company (SCI) is often presented as a simple way for several people to buy a property together.
However, its benefits go far beyond that.
In practice, the partners no longer own the building directly: the SCI becomes the owner, while the partners hold shares in the company.
This distinction allows for much greater flexibility in management, individual powers, and the transfer of real estate assets.
The SCI is, above all, a tool for wealth management and organization.
Contrary to a widely held belief, it is not systematically a tax-reduction tool.
Why create an SCI?
The SCI primarily serves three objectives:
- facilitating the acquisition and holding of a property by multiple parties;
- organizing the long-term management of real estate assets;
- preparing for their transfer.
Its true value lies in its flexibility.
The articles of association notably allow for the organization of the manager’s and partners’ powers, the conditions under which important decisions are made, and, when shares are split, the respective rights of the usufructuary and the bare owner.
The quality of the articles of association is therefore decisive.
Two SCIs holding exactly the same assets can offer their partners very different levels of freedom and protection.
Avoiding the difficulties of joint ownership
When a building belongs directly to several people, they are in a state of joint ownership (indivision).
Certain decisions must then be taken by majorities determined by law, and the most important acts of disposal may require the agreement of all joint owners (Civil Code, Art. 815-3).
In the presence of significant family assets, this organization can become restrictive, particularly when the interests or projects of family members evolve.
On the contrary, the SCI allows decision-making rules to be organized in advance, thanks to the articles of association and the powers entrusted to the manager.
It thus offers a more stable framework for administering real estate assets over the long term.
One SCI or several?
When several real estate investments are planned, one question deserves to be asked from the start: should everything be grouped into a single SCI?
We generally favor one company per real estate project, particularly when the properties have different financing, purposes, or transfer prospects.
Why?
Because this organization allows each project to remain autonomous.
In particular, it facilitates:
- the sale of one asset without affecting the others;
- the entry or exit of a partner;
- the separate transfer of different projects to children;
- the evolution of a property’s management method, particularly in the case of a switch to furnished rentals.
It also helps avoid certain difficulties when dividing family assets.
When several buildings are held by the same SCI, wanting to subsequently allocate a specific building to a child may require a withdrawal of assets, a division, or even a liquidation of the company, with the corresponding legal and tax consequences.
With a separate company for each project, it is instead possible to directly organize the transfer of shares in the relevant structure.
Good architecture therefore often consists of anticipating today how assets may be distributed tomorrow.
Facilitating the transfer of assets
This is one of the main benefits of a family SCI.
Rather than transferring a building directly, parents can progressively transfer shares in the company that holds it.
This organization offers several possibilities:
- making successive donations;
- using, when conditions are met, the tax allowances applicable to donations;
- gradually distributing assets among children;
- transferring the bare ownership of shares while retaining their usufruct;
- anticipating the future governance of family assets.
The SCI thus allows for the progressive evolution of asset ownership without having to break up the buildings themselves.
Transferring to children while retaining the power to sell
This is one of the most important—and often least understood—benefits of the dismemberment of SCI shares.
Parents can give their children the bare ownership of shares while retaining the usufruct.
For tax purposes, gift taxes are then calculated only on the value of the transferred bare ownership, determined according to the age of the usufructuary based on the scale in Article 669 of the CGI (General Tax Code).
Upon the death of the usufructuary, the children become full owners of the shares without further taxation regarding the reunification of the usufruct and bare ownership (CGI, Art. 1133).
But the benefit is also civil.
Why not simply give the bare ownership of the building?
Because in the case of a direct donation, the parent can no longer decide alone to sell the full ownership of the property: the agreement of the bare owner is required (Civil Code, Art. 621).
The SCI allows for a different organization.
The building remains the full property of the company. It is the shares, and not the building itself, that are dismembered.
When the articles of association have been specifically designed for this purpose, the usufructuary parent can retain control over decisions allowing the SCI to sell a building, without having to obtain the agreement of their bare-owner children for this sale, subject to compliance with applicable mandatory rules and the chosen statutory organization (Civil Code, Art. 1844).
The parent can thus begin to transfer their assets while retaining the possibility of reallocating them a few years later.
The SCI then allows two things to be dissociated: progressively transferring the value of the assets and transferring the decision-making power.
Transferring a property still under finance: a lever to reduce the tax cost of the transfer
The SCI can be particularly advantageous when the transferred building is still financed by a loan.
During a donation of SCI shares, taxes are calculated on the market value of the shares, and not directly on the gross value of the building.
However, this value takes into account the company’s asset situation and, under applicable conditions, its debt.
Let’s take a simple example:
An SCI owns a building worth €1,000,000. The remaining capital due on the loan taken out by the company amounts to €600,000.
In this simplified example, the net value of the SCI’s real estate assets is therefore:
€1,000,000 – €600,000 = €400,000.
It is this net value, and not the one-million-euro gross value of the building, that constitutes the starting point for valuing the transferred shares.
The tax benefit then becomes clear: the donation occurs while the value of the shares is still reduced by the SCI’s debt and therefore, in our simplified example, covers a value of €400,000.
Over the years, the rents received by the company contribute to the repayment of the loan. The debt decreases and the net value of the SCI increases. When the shares—or their bare ownership—have been transferred beforehand, this future valuation occurs after the transfer has already been completed.
It is precisely this last mechanism that is beneficial for wealth management: transferring a value of €400,000 today rather than waiting for the debt repayment to gradually bring the net value toward €1,000,000, all other things being equal.
This strategy can be combined with a donation of the bare ownership of the shares.
It then allows for the coordination of credit-based acquisition, the building of a rental portfolio, and early transfer to children.
Capitalizing income within the SCI
An SCI holding rental assets can generate profits.
The partners can decide to distribute them or leave them in the company by allocating them to reserves.
In the latter case, the sums remain in the SCI and contribute to strengthening its value.
When the children already hold the bare ownership of the shares, capitalization thus takes place within a company whose transfer has already been initiated.
Reserves may also, in certain configurations, be distributed later to the usufructuary as part of a quasi-usufruct.
The usufructuary can then use the sums but must, upon the termination of their usufruct, return the equivalent to the bare owners (Civil Code, Art. 587; Cass. com., May 27, 2015, No. 14-16.246).
This obligation creates a restitution claim for the benefit of the children.
When this debt meets the conditions for tax deductibility, it reduces the net assets of the estate on which taxes are calculated.
However, the matter has become more sensitive since the introduction of Article 774 bis of the CGI. The deductibility of the restitution claim must therefore be verified regarding the source of the sums and the structuring of the operation.
SCI under IR or IS?
There is no universal answer.
The choice depends notably on:
- the nature of the investment;
- its financing;
- expected income;
- the holding period;
- planned works;
- the prospect of a resale;
- the tax situation of the partners;
- the transfer strategy.
The SCI under income tax (IR)
When the SCI carries out an unfurnished rental activity and is subject to income tax (IR), the partners are in principle taxed personally on their share of the rental income (CGI, Art. 8).
The building is not depreciated for tax purposes.
In the event of a sale, the capital gain may, on the other hand, fall under the regime for private real estate capital gains, notably with allowances linked to the holding period.
The SCI under corporate tax (IS)
Under corporate tax (IS), buildings can notably be depreciated, which can reduce the taxable result during the holding period.
But this advantage has a trade-off.
Depreciation gradually reduces the net book value of the building and can thus increase the taxable capital gain at the time of its resale.
The choice between IR and IS should therefore never be made based solely on the amount of tax paid in the short term.
It must be assessed over the entire life of the investment.
Can you do furnished rentals with an SCI?
Yes, but this decision can profoundly change the company’s taxation.
Furnished rental constitutes a commercial activity for tax purposes.
An SCI carrying out a furnished rental activity is therefore, in principle, automatically subject to corporate tax pursuant to Article 206, 2 of the CGI.
The administration nevertheless allows a tolerance when commercial receipts remain truly ancillary and do not exceed 10% of the company’s total tax-exclusive receipts.
One must therefore be particularly vigilant before converting a property held by an SCI under IR into a furnished rental.
Changing the rental method of a single building can have tax consequences for the entire company.
This is also one of the reasons why one SCI per project may be preferable when the assets include properties intended for different management methods.
Can shares of an SCI benefiting from a tax advantage be transferred?
This depends on the scheme concerned.
Certain tax advantages are accompanied by an obligation to rent or hold the property for a specified period.
The donation of the bare ownership of the building or the shares may then, depending on the regime concerned, be permitted, subject to certain conditions, or lead to the withdrawal of the tax advantage.
It is therefore essential to check the ongoing commitments before any donation.
The timing of the transfer also constitutes an element of the wealth strategy.
Buying your primary residence through an SCI: is it a good idea?
This is to be determined on a case-by-case basis.
The SCI can meet certain family or wealth objectives, but it also deprives the partners of certain protective rules attached to the direct ownership of the primary residence.
Different protection for the surviving spouse
When the home belongs directly to the spouses, the surviving spouse can, under the conditions of Article 764 of the Civil Code, benefit from a life interest in the home.
When the residence belongs to an SCI, the situation is different: the deceased does not own the building directly but holds shares.
The protection of the surviving spouse must therefore be organized differently, notably through carefully drafted articles of association and an adapted wealth strategy.
Financing the family home through an SCI: a balance to anticipate
The holding of the primary residence by an SCI also changes the consequences of the sums paid by each party to finance the home.
When the property is held directly by the couple, the loan repayment or certain expenses relating to the family home may, depending on the couple’s status and the stipulations of their marriage contract or PACS (civil partnership), be considered a contribution to the costs of communal life. The one who has financed the home more does not then necessarily have a claim against the other.
The situation is different when the home belongs to an SCI: the partners are no longer directly financing their own building, but an asset belonging to a legally distinct company.
The sums paid by each must therefore be precisely organized—capital contribution, advance to the partner’s current account, repayment of a loan taken out by the company—in order to determine each person’s rights.
In the absence of anticipation, financing discrepancies between members of the couple can thus produce, during a separation or death, consequences very different from those that would have resulted from direct ownership of the home.
This is why the choice to acquire one’s primary residence through an SCI must be considered in conjunction with the matrimonial regime or PACS and the methods of financing the property.
Specific constraints in the case of construction
The construction of a primary residence by an SCI also entails certain constraints specific to legal entities, notably regarding structural damage insurance and the use of an architect.
Furthermore, the SCI does not allow for the benefit of the zero-interest loan (PTZ) under the conditions reserved for natural persons.
The SCI should therefore not be used by reflex to acquire one’s primary residence. It must respond to a specific wealth objective.
The SCI: A tool to be considered before acquisition
An effective SCI is not just about creating a company.
It involves thinking together about:
- the acquisition and its financing;
- the drafting of the articles of association;
- the powers of each party;
- the tax regime;
- the property’s management method;
- the future transfer of shares.
For significant real estate assets or those expected to grow, this reflection should ideally take place before the acquisition.
The question is then no longer just how to buy today, but also to anticipate who will receive the income tomorrow, who will retain decision-making power, under what conditions the assets can be sold, and how their value will be transferred to the next generation.
It is this overall vision that makes the SCI a true tool for wealth organization.
