The situation
The family wanted to involve the next generation from the outset, while retaining a clear decision-making process and avoiding the difficulties that can arise when several family members own a property directly.
The acquisition also had to be coordinated with bank financing, future family funding and French tax and reporting requirements.
Our support
- 01
Selecting the appropriate ownership structure
We compared a direct acquisition with the use of different French and foreign holding vehicles.
The analysis included, among other options:
- a French société civile immobilière (SCI);
- a family-owned SARL, which may be relevant in certain situations, particularly where the property is intended to be rented furnished;
- a SAS, which can offer greater flexibility in terms of governance, financing and the rights attached to the shares;
- direct ownership by one or more family members;
- where relevant, an ownership structure established outside France.
An SCI was selected in this particular case because it was consistent with the intended use of the property, the family’s governance objectives and its long-term holding strategy. It enabled the family to organise collective ownership, centralise management and define the rules applicable to transfers of shares and future succession.
In other situations, we have advised clients to use a family-owned SARL, a SAS or another ownership structure. The appropriate vehicle is always determined on a case-by-case basis, taking into account:
- whether the property will be used privately or rented;
- whether the rental will be furnished or unfurnished;
- the number and residence of the family members involved;
- the presence of minor children;
- the financing arrangements;
- the intended governance;
- the income tax and wealth tax consequences;
- the expected holding period and future exit strategy.
Point of attention. There is no single structure suitable for every French real estate acquisition. The appropriate vehicle depends on the intended use of the property, the family’s objectives and the tax consequences throughout the life of the investment. - 02
Structuring the acquisition and its financing
We helped the family combine:
- financing obtained by the holding structure;
- contributions made by family members;
- shareholder loans used to fund part of the acquisition and the ongoing costs of the property.
We reviewed the financing documents to ensure that the purpose of the loan was properly aligned with the acquisition and the costs directly connected with it. We also prepared the shareholder loan arrangements and the related corporate approvals.
Example: where a company acquires a property, the acquisition may be financed through a combination of bank debt, share capital and shareholder loans. Each source of funding has different legal, tax and reporting consequences. - 03
Defining the tax treatment and use of the property
We analysed the intended use of the property and its impact on the tax treatment of the selected structure.
In particular, we distinguished between:
- private use by family members;
- furnished and unfurnished rental;
- occasional and long-term occupation;
- ownership of the furniture;
- costs borne by the company and those remaining personal to the family;
- the tax treatment of rental income and a future disposal.
In this case, the intended use supported the choice of an SCI subject to the French individual income tax regime. In another factual context, particularly for a furnished rental activity or where a different governance and reinvestment strategy is contemplated, a family-owned SARL or a SAS may be more appropriate.
Point of attention. The legal structure, the actual use of the property and its tax treatment must remain consistent throughout the holding period. - 04
Anticipating French wealth tax and reporting obligations
We reviewed the potential French real estate wealth tax implications for the family, including the treatment of the acquisition debt and the documentation needed to support its connection with the property.
We also identified the annual corporate, tax and reporting obligations applicable to the selected structure and its shareholders.
Example: for a property valued at 10 and acquisition debt of 4, the relevant net value is not necessarily determined by a simple subtraction. The deductibility of the debt must be reviewed under the specific French real estate wealth tax rules.
The result
The family acquired the property through a structure designed to combine collective family ownership, clear governance, documented financing, long-term transmission objectives and compliance with French tax and reporting requirements.
The structure created a practical framework for holding, managing and ultimately transferring the property. The selection of an SCI reflected the facts of this particular case rather than a standard approach to every French real estate acquisition.
This case was handled by the firm, in light of the law and case law in force at the time of the engagement, and in the light of circumstances specific to it. It is presented for illustration purposes only: it does not constitute advice and does not predetermine the treatment that might be adopted in another matter.