Buy-to-Let in France Through an SCI: What Changes for a Landlord

Buy-to-let in France through an SCI: what changes for a landlord

Holding rental property in France through an SCI (société civile immobilière) changes several things for a landlord, without changing the tax rates that apply to a direct owner. The rental income is taxed transparently in the shareholders' hands, whether or not any cash is distributed; the choice between income tax and company tax becomes available and carries real consequences for depreciation; the residential lease a company grants is longer and harder to end than an individual's; and furnished letting is a line the SCI cannot cross without being pulled into company tax. This guide sets out what each of these means for a landlord letting through an SCI.

The SCI is a natural vehicle for buy-to-let because it lets several people hold rental property together, share the income in proportion to their shareholdings, and organise the transmission of the property as shares. But the landlord mechanics - taxation, depreciation, leases, financing - are where the day-to-day difference is felt, and they are the subject of this guide. The wider case for and against an SCI is set out in our full buyer's guide.

How rental income is taxed in a buy-to-let SCI

By default an SCI is fiscally transparent. The result is worked out at company level, but it is taxed in the shareholders' hands, as it arises, as property income (revenus fonciers) - each shareholder taxed on the share of the profit corresponding to their holding. Where the SCI is set up from the start between parents and children, the rental income is divided among the shareholders in proportion to the number of shares each holds, and the family can arrange the split by arranging the shareholdings.

The feature a landlord must understand is that taxation does not wait for distribution. A shareholder is taxed on their share of the profit even where that profit has not been paid out - for example where the rent is retained by the company to repay a bank loan or a shareholder's loan account. In practice the shareholders may receive nothing in the early years, while the rent services the debt, yet each is taxed year by year on their quota of the result. The transparency that makes the SCI simple on the income side also means the tax can fall due before any cash is received.

A related point shapes how retained rent is treated. Unlike a share company, an SCI is under no obligation to place part of its profits in a legal reserve, so rents that are capitalised rather than paid out can be credited to the shareholders' loan accounts, provided the corresponding bookkeeping is kept. But this does not defer the tax: in an SCI that has not opted for company tax, the accumulated rents are taxed in the shareholders' hands in proportion to their rights at the year end, whether or not those sums have actually been drawn. Retaining the rent inside the company organises the cash, but it does not postpone the shareholders' liability to tax on it.

Two further points shape the property-income calculation under income tax. The costs of acquiring the property, and the registration duties, are not deductible from the property income - unlike in an SCI that has opted for company tax. And the property-income regime carries the ordinary treatment of property deficits, so a loss on the let property follows the rules that govern property-income deficits generally. Both are features of letting under the income-tax regime, not peculiarities of the SCI, but they frame what a landlord can and cannot deduct.

Depreciation and the income-tax-or-company-tax choice for a landlord

The single most consequential landlord decision in an SCI is whether to stay under income tax or elect company tax, and depreciation is at the centre of it. Property depreciation is never taken into account in computing the result of an SCI that has not opted for company tax; the deduction simply does not exist under the income-tax regime. An SCI that elects company tax, by contrast, applies the ordinary depreciation rules, so the building - and works on it - can be written down against the result, often sheltering the rental profit for years.

For a landlord carrying acquisition debt, that difference is usually decisive in the early years: company tax allows the property to be depreciated while the loan is being repaid, so the taxable result is reduced at precisely the time the rent is being absorbed by the debt. The counterweight is the exit. Depreciation reduces the property's net book value, so a later sale by an SCI under company tax can produce a larger taxable gain; the sale of the building is taxed at company tax, and a distribution of the proceeds is taxed a second time as the shareholders' dividend income; and a sale of shares in an SCI under company tax leaves the private property-gains regime for the securities-gains regime. The option is in principle irrevocable, subject to a renunciation window in the first five years, and it requires commercial-style bookkeeping. It is a structural commitment for a landlord, not a year-to-year lever, and is analysed in full in our guide to SCI taxation.

How should your rental SCI be taxed?

Pick the description closest to your buy-to-let plan - the check shows which tax regime usually fits and why.

The lease rules that change for an SCI landlord

The residential-tenancies statute (law 89-462 of 6 July 1989) treats a company landlord more strictly than an individual, and a buy-to-let SCI feels the difference on two points. A residential lease granted by an ordinary SCI runs for six years - against the three years an individual landlord may grant - and is reconducted or renewed for at least six years at a time. And an ordinary SCI can give notice at the end of the lease only to sell the property, with a priority right for the tenant, or on legitimate and serious grounds; the notice to recover the property for someone to live in, open to an individual landlord, is not available to an ordinary SCI. A company landlord therefore has less room to end a residential tenancy than an individual would.

There is one relief. An SCI formed exclusively between relatives up to the fourth degree - a family SCI - is assimilated to an individual for the length of the lease and for notice: the lease can run for three years rather than six, and notice can be justified by the decision to recover the property for a shareholder's needs. For commercial and professional premises, the ordinary lease rules apply, with no special regime for a company landlord - an SCI letting a shop or office is on the same footing as any other lessor. A landlord choosing an SCI for residential buy-to-let should factor the six-year commitment and the loss of the occupation notice into the plan, and consider whether a family SCI is available where the shareholders are close relatives.

Financing a buy-to-let SCI

Financing a rental purchase through an SCI is narrower than financing it as an individual. An SCI cannot use the routes to home ownership the law reserves for individuals - it has no access to the home-savings-plan loan or the regulated loans that support private buyers - and it falls outside the protective rules on consumer property credit. Banks lend to an SCI on commercial terms, and habitually require the shareholders' personal guarantees before advancing funds, which reintroduces on the shareholders personally the exposure the company was meant to contain.

Against that, the SCI gives a landlord flexibility in how the purchase is funded. The company can borrow directly from a bank, or the shareholders can fund it through their loan accounts, or through staged capital called as the project needs it. Where the property is let, the rent can service the bank loan and repay the shareholder accounts over time - the mechanism that lets a family finance a rental purchase on modest capital and draw income only once the debt is cleared. The financing is less protected than an individual's, but more malleable, and the funding structure is itself a decision a landlord takes at the outset.

Furnished letting: the line a buy-to-let SCI cannot cross

The clearest constraint on an SCI landlord is the boundary between unfurnished and furnished letting. Letting unfurnished premises is a civil activity, and it remains civil even where the tenant is a business under a commercial lease - this is the activity the SCI is built for. Letting furnished, by contrast, is treated as a commercial activity for tax purposes, and an SCI that takes it up as a real activity is liable to company tax, with the cessation consequences of the change of tax regime (CGI Arts. 206, 2 and 202 ter).

The trap for a buy-to-let landlord is how little it takes to cross the line. A family that lets an SCI's flat furnished - for a holiday season or year-round - has changed the company's tax nature, and the courts have found the commercial activity present in the mere intention to let furnished, before the first furnished tenancy even begins. There is a narrow administrative tolerance - accessory commercial receipts up to 10 % of total receipts excluding VAT leave the SCI under income tax - but it is a ceiling on incidental activity, not a licence to run a furnished-letting business inside the SCI. A landlord who wants to let furnished should hold that activity in a different structure and keep the SCI to unfurnished letting; the consequences of the change of regime are set out in our full buyer's guide.

Buy-to-let through an SCI: which landlord question is yours?

Landlords come to the SCI with different questions. Pick the one that fits - the check shows what the SCI does with it.

Buy-to-let through an SCI: what changes at a glance

Frequently asked questions about buy-to-let through an SCI

This article is for general information only and states French law as published in the sources available at the date shown above. It does not constitute legal or tax advice. How to structure and tax a buy-to-let SCI depends on the property, the letting, the financing and the holding period. Always seek qualified legal advice - and coordinate with the notary - before letting French property through an SCI.