Buying a property for your children
Parents can give a helping hand to their children through a donation or by starting a Civil Property Company.
How to help your children acquire a property? With the rise of housing prices in France, more and more parents are asking this question. For young people, without any family to help, buying a property is usually difficult. Nevertheless, property is more than ever essential in building up capital.
A DONATION as funding
With the recent patrimony taxation reform, each parent is able to give a total tax franchise ofup to 159.325€ (allowance in effect for 2011) for each child, every ten years, that is to say 318.650€ per couple. Moreover, if the child is over 18, he can benefit from an additional allowance of 31.865€ (if his parents are under 80). This enables the child to acquire a rather nice pied-a-terre, even in Paris. This strategy offers the advantage of not increasing your own financial assets because your child immediately becomes the only owner. This way, parents can be exempt from wealth tax if their net patrimony value remains below 1.3 million Euros or can benefit from tax cuts if the net patrimony value is not more than 3 millions of Euros.
However, this concept has its disadvantages. “When the child reaches 18, he holds full ownership of the property and can sell it, at any time, without his parent’s consent” states Michel Brillat, manager of the French Financing Union. “To block any inappropriate attempts”, Louis Aussedat, a notary from the Altemis network, advises to include a banning of alienation in the donation act and in the acquisition act.. With this clause, the sale of the property is subject to the parents’ agreement.
It is possible to go through the process for the benefit of a child under 18 but you will need the approval of a magistrate. As long as the child is under 18, his property belongs to his parents’ property holdings with possible consequences in terms of wealth tax.
In a smaller way, if you have a property savings plan, you can transmit your lending rights to your child, as long as he himself holds a similar plan (open for at least 3 years).
Finally, you can be exempt from land registration tax (0.715%) if you give money first instead of a property that you already own.
BUYING AND PASSING ON by SCI
Here, it’s the SCI (Societe Civile Immobiliere or Civil Property Company) that acquires a property and not you and/or your children directly. This enables funds and conveying to be done even more easily. The parents are associates and own the SCI’s shares. One of the main advantages of this legal structure is its flexibility. As long as you rely on a notary or solicitor (about 2,000 Euros) to write up the statutes, all possible management schemes, or nearly all, can be planned for serenely: full ownership or property without usufruct only given to the children, fully or partially, etc. The parents can take on the role of managers to have a hand in the decisions and take care of all the formalities (General assembly, etc.). “In this configuration, the children, even if they’re over 18, can sell only with your consent” emphasizes Gilles Etienne, associate manager from Cyrus Conseil. Moreover, the SCI can borrow, even if the children are under 18 and associates. The only imperative: to clearly fix, their responsibilities concerning debts with professional help, and obtain the Judge’s agreement. To finish, the SCI’s existence itself is not limited by time or value, just like the patrimony managed by the SCI, which isn’t fixed either.
Scellier Law: rent to your child
According to the Scellier Law, parents who live in France (and pay taxes on their French income), who buy a French property and benefit from a tax discount of up to 22% can rent it to their child.. There are only three conditions: the property must be the child’s main residence, the child has to be separated from his parents’ fiscal household (he must pay his own taxes) and he has to pay the rent.