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What should I do if I want to dissolve my French property SCI?

The Local France
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What should I do if I want to dissolve my French property SCI?
(Photo by FRED TANNEAU / AFP)

Owning a French property through an SCI brings with it some extra complications, including with the new property tax declaration. We asked the experts whether dissolving the SCI is a good idea, and how you go about doing that.

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An SCI - société civile immobilière - is a non-trading real estate company made up of at least two people. Essentially, it allows people to own property such as a second home through shares of a company, rather than under their own name.  

There are more than one million properties in France that are registered as SCIs, but most of them were created some years ago. In previous decades, they were quite popular, but SCIs have become less common as time has gone on and several tax loopholes have been closed.

For foreigners who own second-homes in France, the 2015 EU ruling on inheritance means that for many people their rationale for having an SCI – bypassing French inheritance laws – no longer applies.

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Additionally SCIs, particularly for foreigners, represent a large administrative burden, and as such can also become a drain on finances when it is necessary to seek legal and financial counsel. 

Some SCI owners have also run into problems with the new French property tax declaration

READ MORE: EXPLAINED: The new French property declaration form for SCI owners

"An SCI is a large commitment. It means you will agree to run a company, and that involves paperwork and meetings", explained Paris-based notaire, Laure Gaschignard.

Gaschignard told The Local that there are two primary situations where people might want to set up an SCI. The first would be for couples who are not married or pacsé (civil partnership), but want to buy property together and set up an inheritance system where the one is able to maintain either a portion of or the entire property in the event of the other's death.

The other situation Gaschignard noted was for those who have unique family situations and are in need of a more flexible way to structure their property ownership and inheritance. 

For others, there might be some tax-based interests in setting up an SCI depending on their financial portfolio, but many have found that owning property in this manner may not have been as financially lucrative or simple administratively as previously intended.

As a result, some are wondering whether the best solution would be to simply dissolve their SCI and reclaim the property under their own name.

How can you go about switching it back?

While it is possible to dissolve an SCI and get the property back under your own name, it might be more costly to dissolve the SCI rather than to maintain it. 

READ MORE: EXPLAINED: The advantages and pitfalls of buying French property with an SCI

First, there are some scenarios where an SCI should be dissolved - if it has has reached its expiration date (typically, this is set to 99 years) or if there terms were put into contracts that set up a specific lifespan for the SCI, if there is an intent to sell the property, or if partners to the SCI opt to sell their shares to a single partner. An SCI can also be dissolved by court decision, if necessary.

Otherwise, if the partners wish to dissolve the SCI, then they must hold a special meeting to vote on the plan and to appoint a 'liquidator'. 

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Several administrative steps will follow, including publishing a posting in a legal newspaper and filing for dissolution.

It is strongly recommended that people seek professional advice on this.

Is it advisable to do so?

You should be aware that if the SCI has appreciated in value significantly, then you will likely be taxed on liquidation. While it would be possible to recover your assets, depending on the situation, you could lose out on funds in the process. 

You may owe capital gains taxes, depending on which regime you were taxed and whether the SCI is your primary residence.

According to Maître Edouard Pruvost, the best option for those looking to dissolve would be to meet with legal counsel and find out approximately how much you stand to gain or lose in the dissolution process. 

This article is a general overview on the issue of SCIs and does not constitute legal advice. Anyone with an SCI is strongly advised to seek professional advice from a lawyer with expertise in the French legal and tax systems.

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