One of the primary reasons for buying through an SCI was the inheritance benefits that this type of structure granted to the shareholders. Under French succession law, the forced heirship rules do not apply to shares in an SCI when owned by a UK domiciled individual. Furthermore, the French property could be freely disposed of under the terms of an English Will, thus circumventing problems for UK domiciled individuals, particularly those with step-children who would otherwise face large liabilities on inheriting a property or part of a property from a step-parent. SCIs looked to be a win/ win proposition.
For many years, the shareholders have happily come to France to use “their” property rent-free with, it was assumed, no tax liabilities accruing as the result of their occupation. The special status of the SCI, resulted in no personal French tax charge for the rent-free use /occupation of the property owned by the SCI. Provided, the shareholders complied with all the French accounting, reporting and management rules, then it all looked so very easy.
However, if the shareholders are UK tax resident there is a very real UK tax problem waiting to explode. HMRC will treat the SCI as a corporate entity (not a special status partnership, as it is in France) and the shareholders may be at risk of being assessed to a taxable benefit-in-kind in respect of their periods of rent-free use of the property. This benefit-in-kind would then be taxed at the individual’s UK marginal rate of tax (possibly up to the 50% tax rate). To avoid this charge on a benefit-in-kind, the individual must demonstrate that he is not a director of the SCI and this is not as easy as merely arranging for a substitute, local person to act in their stead. The SCI shareholders can be deemed to be shadow directors of the SCI – thus for UK tax purposes, regarded as “officers” of the SCI company and, therefore, within the UK tax provisions applying to directors who receive a benefit-in-kind.
If you are one of the many British owners who have used an SCI to purchase a French home, then it is advisable to review your arrangements for the SCI as a matter of urgency. Higher rate taxpayers have been offered an amnesty by HMRC in respect of earlier years’ tax returns and so it is vital to consider your UK tax position in order to mitigate penalties and interest charges.
Contact firstname.lastname@example.org for further information and a review of your personal tax position.
Contact PetersonSims at:
UK +44 (0)1626 572100
France +33 (0)533520933