It is common for UK residents buying a home in France to buy them using a Societe Civile Immobiliere (SCI) to acquire the property).
In France for tax these SCIs are tax transparent, that is, the individuals involved are taxable as though the SCI did not exist.
In the UK however I understand that an SCI is opaque for tax purposes, that is, the actions of the SCI are its own for tax,
This creates lots of apparent problems.
1. A) On whom is the income taxable in the UK if the property is ever let? I have read that it should be returned as income of the individual owners and that seems a common sense solution as the rents will in practice be paid to the individuals and not to the SCI and the expenses will be paid by them also; also an SCI in French law is, I understand, legally banned from carrying on a business. B) Does a form 17 have to be filed to allocate the income to the individuals in their equitable proportions? C) If interest is incurred on a loan taken out to buy the property but this is not secured on the SCI property, is that interest deductible in principle from the rent?
2. A) How are capital gains to be calculated? The costs will have been borne by the individuals but the property is in the SCI. Is it possible to have a capital loss? I find this very confusing to think about. B) Also can such an SCI property be the subject of a Main Private Residence claim (if switched in the proper manner)?
This situation must have arisen many times in the past, but I can find little written about it and have found so far nothing on the UK capital gains side.
Can anyone enlighten me on how it all works?
Replies (5)
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SCI
HMRC do treat SCI as opaque-see INTM180030
The underlying income would be directly assessable on the owners under ITA s720
Normal tax principles would apply so iunterest should be allowable if purpose of loan was to acquire the proiperty-security is irrelevant.
TCGA s13 would apply if property is sold at a profit.A claim under s13(5)(cb)(ii) might apply [see my query yesterday].
Overriding question- can UK taxpayer argue that for UK tax purposes SCI is merely a nominee? If so, main reisdence relief could apply if not merely a holiday home .On the question of holiday homes, see Trather and Another v HMRC, where there is a discussion on this subject. If SCI is not a nominee, then main residence relief cannot apply.
French tax advice may be advisable given that rental income arises there.
ITA section 720, TCGA section 13?
Are you not assuming that this French company (probably managed and controlled by UK residents) is non-UK resident?
I am not sure it will be.
I think the commercial reality is that the SCI is mere nominee for the individuals.
I did not point you at the two sections
The two sections are not relevant.
The point is that whilst the SCI has legal ownership of the asset, the individuals are the beneficial owners. It is the beneficial owners that are liable to the income and gains.
Off the cuff, SCIs are transparent for French tax, but NOT if you let the property furnished, when the company will be taxed under the French corporation tax regime