Reader Question: We bought a French house in 1994, creating an SCI for family ownership. It was sold in May. We planned to close the SCI but the estate agent suggests we transfer a chalet bought in 2002 into it to reduce capital gains tax when we sell it, probably within five years. Is this sensible? Our four UK-resident children own 24% of SCI shares each, we hold 2% each. We are UK residents, in our eighties, and want to simplify life.
The fact of transferring a property is seen as equivalent to a sale.
As a result, capital gains tax will be due by the two of you on the sale of the chalet, and stamp duty will be due by all associates to the SCI on the purchase, plus legal fees.
There might also be gift tax due by the children on your giving them a part-share in the chalet (though allowances for children are high).
Finally, if the chalet is sold again later, there may be CGT (and social charges) due by the SCI on the gain, and there is no allowance against this in the first five years.
Also, as the children will hold a majority share of the SCI, will they all agree to selling it?
Accordingly, the transfer has no obvious benefit in terms of capital gains tax liability, and will additionally incur stamp duty cost so there seems to be no point.
In any case, if you do not do this, from next year (after 21 full years of ownership) there would be no CGT as such payable on sale of the chalet due to the allowance for length of ownership, and the related social charges liability will also be greatly reduced.
There can be other advantages to transfers to an SCI – for example, related to inheritance planning – but in that case there may be alternatives to achieve your wishes, such as modifications to your marriage regime.
It would be best to speak to a tax specialist who can explain further the advantages and disadvantages.
Is there a way to reduce 60% French inheritance tax for friends
French property tax: buying, selling, capital gains, inheritance