Illiquidity discount (décote d'illiquidité)

A share in an SCI (société civile immobilière, a French property-holding company) does not sell like a flat. There is no organised market, potential buyers are rare, the articles of association often make any transfer subject to the approval of the other shareholders, and the buyer enters a company whose management and liabilities he does not control. A rational buyer therefore pays less than the share of net assets the share represents. The illiquidity discount measures that difference.

It is accepted by the French tax authority and by the courts, provided it is justified by the actual situation of the company. Its rate is not fixed by law; reported decisions frequently adopt 10 % to 20 %, sometimes more for very closed companies.

Where the rule comes from

The basis is the principle of real market value: registration duties and the IFI (French wealth tax on property) are assessed on the price a buyer would actually pay (article 666 of the French General Tax Code). That price takes account of the difficulty of resale. The Cour de cassation checks that discounts are not stacked without reason: in a decision of 9 July 2025 (appeal no. 24-13.540), it accepted a 10 % discount for the illiquidity of the properties held and another 10 % for the illiquidity of the shares, but refused a further discount for “joint ownership”, since the shareholder of an SCI is not a joint owner.

In a valuation report

I justify the discount with specific facts: approval clause, number of shareholders, family character of the company, absence of distributions, likely holding period, existence of significant debt or shareholder current accounts. I distinguish the illiquidity of the assets, already reflected in the market value of the properties or in a separate discount when the portfolio is hard to sell, from the illiquidity of the shares. I apply it to the share of restated net asset value, before or after the minority discount depending on the presentation adopted, and say so clearly. The report cites the decisions on which it relies rather than asserting a customary rate.

Example

An SCI between brothers and sisters owns a tenanted building; the restated net asset value is €1,200,000. One shareholder holds 30 % of the shares, or €360,000 in mathematical value. The articles require unanimous approval for any transfer to a third party and the company has distributed nothing for ten years. I adopt an illiquidity discount of 15 %, or €54,000, bringing the value down to €306,000 before the minority discount.

Not to be confused with

The minority discount, which reflects the lack of power within the company and not the difficulty of selling, and the discount for occupation, applied to a let building and already included in its market value.