Astoria Finance – How to optimize income, taxation and transfer thanks to a civil real estate company (SCI)? – PATRIMOINE24 – All wealth management news
SCI is not only a tool used to develop a common heritage. Indeed, its civil and tax regulations make it a key asset management tool that can fully meet budgetary, tax and transfer objectives at the same time.
Bring real estate into science and transfer its added value
If legal allowances for donations are often quickly exhausted, then civil society can be called upon to circumvent traditional transfer rules.
A parent wishing to transfer real estate to their children may be wise to consider setting up an SCI using the partners’ current account mechanism.
Here, for example, it is necessary to organize a SCI with low capital so that the children have 90% and the parent only 10%. Then, the parent sells its property to SCI, which does not immediately pay the price and therefore records the debt (partner-to-company loan).
The SCI collects the income from the estate and the parent never asks for repayment. This is also free of charge. As the SCI is subject to corporate taxation, the property will be depreciated and this will control the taxable results. Even in the case of profits, these will be taxed between 15% (up to €38,120) and 25% more. Thus, taxation is generally much lower than income tax (e.g. 58.2% for a person with a marginal tax bracket of 41% and social security contributions of 17.2%).
Let’s take into account that at the beginning, the property contributed during the transaction was worth 300,000 euros. The parent dies 15 years later when the estate is worth €650,000. In addition, the company has all the cash that will be capitalized in the accounts during these 15 years.
The result is convincing. After death, the parent’s children now own 90% of this property, which is worth €650,000, plus the cash they received when they initially invested a small amount.
There was no liberality and it was not a question of a concealed gift, as the parent’s claim was to be taxed at inheritance for the value included in the account of €300,000.
In addition to the budget and tax optimizations allowed by the SCI here, civil regulations within the law will be the vector for the success of the strategy. It will be possible to transfer management and full powers to the parent, and it will be possible to regulate the rules of withdrawal and transfer of money by partners. Civil society will also be interested in having a corporate purpose that is broad enough to leave room for multiple cash investment solutions over its lifetime.
Refinance family assets for value
Most French people are particularly attached to real estate values, but when it comes time to worry about passing it on, they quickly realize that keeping property in their inheritance can have serious consequences for succession.
It may be appropriate to sell real estate to a newly formed SCI together with family members. Here, it is advisable to form an SCI with poor capital, lend it, then buy back the property, transfer the shares to bare ownership.
The benefits are many. First of all, the strategy allows you to accumulate capital in your assets, which can be highly appreciated. Then, liquidating the asset can allow the parents to invest the cash in a more optimized way from a transfer (life insurance, GFI) perspective, while allowing the assets to stay in the family.
Equity can also be owned primarily by the children with a loan from SCI, subject to their ability to finance themselves. Here the transfer will happen instantly and the parents will also get a huge amount of money. Everything will depend on the goals and the real estate project.
These strategies have the advantage of generating cash to absorb transaction-related costs and are relevant when there is a desire to keep the property in the family, as well as an interest in accumulating capital for the parents.
Deposit your capital into the partner’s current account
The strategy is to provide capital directly to the company, not to its capital. A capital contribution (a loan from a partner to the company) against the partners’ current account will then allow the contributors to benefit from the option of repaying that account and its consideration, when they see fit and tax-free. Indeed, debt repayment does not constitute taxable income.
SCI then makes its investments. Although mainly real estate, it can also hold other types of investments and in particular shares in real estate companies (SCPI), as well as financial investments such as capitalization contracts, structured products or investments in professional funds. Therefore, income and capital gains made by the company will be covered and capitalized until they are withdrawn by paying off the partner’s current account, if necessary.
In addition, this arrangement allows you to benefit from taxation that is more attractive than the income tax on investments. Take the example of investment in real estate products subject to TMI and social security contributions, the fact that they are invested in IS through SCI will allow partners to optimize taxation thanks to the IS rate of 15% (reduced). rate) then 25%.
Obviously, the device has its limitations, because once the current account is fully paid, the company’s cash can only be collected by the partners in the form of taxable dividends.
For this transaction, the SCI will be majority owned by the parents to avoid the risk of being classified as a donation. However, the latter may consider transferring their shares quickly in bare ownership, given that they are undervalued at the time of the merger.
Parents will also focus on maintaining management and full authority to combine additional income and pass-through objectives while maintaining control of their assets.
- Before considering an ICS strategy, it is important to define stakeholder objectives and quantify the cost of operations.
- It is the proper use of civil and tax rules that optimizes both revenue, taxation and transmission.
- The option of corporation tax should be sufficiently studied according to the project in question
Article written by Marine CHASTAING, Wealth Engineer, Astoria Finance.
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