The deceased held 60 % of a family SCI (société civile immobilière, a French property-holding company) that owns a tenanted building and a holiday home. The notaire (French civil-law notary) asks for a value for the inheritance tax return. Should you declare 60 % of the value of the properties? No, and the difference often runs to tens of thousands of euros in tax. But every euro of discount must be justified, otherwise the tax authority reassesses.
Starting point: the restated net asset value
The value of the shares is first calculated from the restated net asset value. Each property is valued at its market value on the date of death, the other assets are added (cash, receivables) and the liabilities are deducted (loans, shareholder current accounts, tax debts). The result, divided by the number of shares, gives the mathematical value of one share.
This is the stage where the property valuer contributes most: the valuation of the properties determines 90 % of the result. A tenanted building is valued taking account of the leases in place; a property occupied rent-free by a shareholder is analysed differently. The guide to valuing SCI shares details the three possible approaches: net assets, earnings and excess value (survaleur).
Shareholder current accounts: the oversight that costs money
In a family SCI, the shareholders have often financed works or acquisitions through comptes courants d’associés (shareholder current accounts, in effect loans to the company). These sums are debts owed by the company to them. They are deducted from the net assets, and therefore from the value of the shares. But the deceased’s current account is itself an asset of the estate, to be declared separately at its face value. Confusing the two leads either to double taxation or to an omission that the tax authority spots easily on reading the balance sheet.
The illiquidity discount
An SCI share does not sell like a flat. There is no market, the articles of association almost always require the approval of the other shareholders for a transfer to a third party, and a prospective buyer acquires a fraction of a property that they cannot occupy alone. This lack of liquidity justifies a discount on the mathematical value.
Case law and the tax authority’s published doctrine accept this discount. The rates applied are most often between 10 and 20 %, sometimes more when the articles are particularly restrictive or the company is loss-making. The rate is never a flat rate: the report must link each point of discount to a specific feature of the articles, of the ownership structure or of the company’s situation.
The minority discount
A holding that does not allow its owner to decide alone on the sale of the properties, the distribution of profits or the winding-up is worth less than a controlling holding. A minority discount can be combined with the illiquidity discount, provided the same handicap is not counted twice. For a majority holding, such as the 60 % in our example, it does not apply; the illiquidity discount, on the other hand, remains justified.
Deferred tax
If the properties were sold, the company or its shareholders would bear capital gains tax. This latent charge weighs on the value of the shares, but its acceptance by the tax authority remains debated and depends on the company’s tax regime and on the real prospect of a sale. The report examines it, then sets it aside or applies it with reasons, rather than applying it as a matter of course.
What the tax authority checks
The tax office checks the consistency between the declared value of the properties and comparable sales, the existence of the liabilities deducted, and the justification of the discounts. An overall 30 % discount without reasons is the typical case for reassessment. Conversely, a property-by-property valuation, documented liabilities and discounts linked to the articles withstand audit and, in case of disagreement, can be defended before the departmental conciliation commission and then before the court.
The same reasoning for a gift or a divorce
A gift with partition (donation-partage) of shares, the withdrawal of a shareholder, the settlement of a matrimonial property regime or the calculation of IFI (French wealth tax on property) rely on the same mechanics, with a different reference date. Where shareholders disagree on the buy-out price, article 1843-4 of the French Civil Code provides for the appointment of an expert. The Business and company shares page describes these assignments, their timescales and their fees.
What next
SCI shares to declare in a French inheritance or gift?
Send me the articles of association, the latest balance sheet and the list of properties: I will propose a valuation of the shares with justified discounts, ready for the notaire and defensible before the tax authority.
Free quote, by email or by phone. No commitment before the quote is accepted. Fees are never linked to the value of the property (Charte de l’expertise, Title I, §2.1).
