Investing in family housing can give a young person a boost as they start life. It remains to choose the right legal organization. Here are the pros and cons of co-ownership and civil real estate company (SCI).
Becoming a homeowner is a concern for young people. According to a recent survey by Fnaim and Ifop, 85% of young adults believe it is more economical to own and 47% of young non-owners want to become one within five years.
From dream to reality, it’s a big step that some hope by investing together, parents and children, within the framework of a community of owners or a civil real estate company (SCI).
Solution 1: Shared ownership
Buying as a family automatically gives co-ownership, it’s easy and quick as no notarial deed is required to create it. “We own everything together with certain shares”, specifies Me Peggy Montesinos, member of the Superior Council of Notaries. The distribution of financial participations is fixed and will be determined at the time of signing at the notary.
Be careful, warns Denis Rattier, heritage engineer at K&P Finance, “the distribution of fees can vary, it’s best to put this in writing”.
Co-borrow to borrow more
From a financial point of view, parents and children can borrow separately or together to get a larger loan and a better interest rate. However, if the banks take the respective age into account, this affects the term of the loan and the insurance rate and your child can be punished. In addition, as a co-borrower, you are in solidarity, which is not the case when acting separately.
Another downside is that you don’t necessarily benefit from subsidized loans like the Zero Interest Loan (PTZ). In fact, “if only one of the borrowers does not meet the conditions to obtain the PTZ, this causes everyone to lose the benefit of the PTZ,” points out Cécile Roquelaure, study leader at Empruntis.
Management works well when you get along well, as most decisions require the consent of the co-owners, who represent two-thirds of the undivided shares. The most important decisions (sale, carrying out major works) require unanimity.
To streamline administration, consider signing a co-ownership agreement before a notary, where an administrator will be appointed. This could be your child, for example, if they live in the property. In this agreement, the duration of which is limited (renewable for five years), you decide unanimously what he can do alone and within what financial limits.
Everything ok… otherwise we sell
When the cogs of shared ownership get stuck, you either find a deal or you sell. Nobody should stay in co-ownership, which means that if someone wants to sell, the others have to buy back or sell their share, unless “the co-ownership contract stipulates that it is temporarily impossible to exit co-ownership,” says Denis Rattier .
Co-ownership does not change anything from a tax point of view. Payment of property or housing taxes is distributed according to the shares. For co-owners who are subject to the real estate wealth tax (IFI), “their share is included in the calculation of the tax”, specifies Jérôme Rusak, President of L&A Finance. A discount for the calculation of the IFI in the range of 20-30% is allowed as a co-owned property is more difficult to sell than a wholly owned property (subject to conditions).
Finally, capital gains recognized upon resale are taxable, except for those who occupy the home as their primary residence.
Solution 2: the SCI
Forming an SCI is not as easy as buying in co-ownership. Together they form a company, each holding shares according to the distribution and the price fixed on the day of its incorporation. This value will evolve in line with SCI’s assets and liabilities. This creation requires formalism and rigorous management (see box).
More expensive home loans
It is the company that rents and buys the apartments. The loan differs from a mortgage in that you are not financing a property, but the capital of a company. They have neither cancellation periods nor subsidized loans. On the interest rate side, “according to the banks, they can be 0.30 points higher to fund these stocks,” notes Cecile Roquelaure. On the other hand, the bank is not obliged to apply the recommendations in relation to leverage … which does not mean that it does not examine the personal situation of the partners (age, occupation, etc.). )! Positive point: The credit insurance can only be taken out by children, which costs less, but parents and children remain guarantors for each other. Be careful in case of selling the shares, you must inform the lending bank and get their prior approval.
When drafting the articles of association, you appoint a director and determine what he can do alone (other than sell, buy and borrow) and for what amount; the majority with which the resolutions are passed; whether free accommodation can be provided, etc. “In these statutes, we can go into detail about certain provisions,” specifies Paul-André Soreau, founding partner of the Altride Family Office. For example, we can predict what will happen to the shares in the event of death, who will replace the deceased, and exclude certain individuals.
Give more at no cost
Purchasing as part of an SCI does not change taxation. The principle is that of fiscal transparency. You pay property and housing tax up to your shares. If you are subject to IFI, integrate your shares at a discount of around 10%. Every fifteen years you can donate your units up to 100,000 euros free of charge. “The value retained for the donation is the net value of the shares, less fees, including the loan, which greatly reduces their value,” specifies Me Peggy Montesinos. Thanks to this mechanism, you give more and for free.
If you want to gain a foothold in SCI, think dismemberment. You relinquish bare ownership of your shares and retain the beneficial interest. At the same time, you reduce the gift taxes owed by your children, which are calculated on the sole value of the mere ownership of the shares according to the ad hoc tax scale (Art. 669 CGI).
Build your SCI in the rules
The SCI is famous for these many advantages, but to be validly constituted many formalities are required: drafting, signature and registration of the statutes to be worked out in the smallest detail (administrative methods, approval clauses, etc.), exploitation of capital contributions, publication of the statutes of the SCI in a journal for legal notices, registration and declaration of existence of the SCI, etc. Steps that should be carried out with a professional (accountant, notary, etc.) and for which a cost of around 1,200 to 1,500 euros must be budgeted.
A rigor that also applies to the management of the SCI. Even if everything goes as well as possible between you, you must hold an annual general meeting once a year, keep accounts and transmit the documents and accounts, under pain of appointing an administrator.