SCPI: how are the capital gains taxed?
If any SCPI (Collective Real Estate Investment) shares are sold for a price greater than the purchase price, the capital gain recovered by the investor will be subject to the same taxation scheme as the capital gain generated by the sale of a real-estate property. However, the longer the shares are held the lower the tax rate.
In the event of the sale of SCPI (Real Estate Investment Company) units at a price higher than that paid to acquire them, the capital gain realized by the investor is subject to the same tax regime as the gain pocketed when selling a property. However, the longer the shares are held, the lower the tax payable.
How to calculate your taxable capital gain
The capital gains generated by selling SCPI shares are the difference between the sale price and the original purchase price. Any sales commissions paid by the investors can be deducted from the sale price. And any purchase commissions paid by them can be added to the purchase price. The resulting capital gain amount will be the gross capital gain. If the shares have been held for more than five years before the sale, this amount will be rebated. The share holding period is calculated by periods of 12 months from the date of purchase to the date of sale, partial years will not be counted.
A different rebate rate is used for the calculation of income tax and national insurance contributions. In the first case, this is set at 6% per holding year beyond the fifth year and up to the twenty first year, and at 4% for the twenty second year of holding. In the second case, this is set at 1.65% per holding year beyond the fifth year and up to the twenty first year; at 1.60% for the twenty second year of holding and then at 9% per additional year of holding beyond that. Consequently the capital gains will be totally tax free after 22 years of holding and not subject to national insurance contributions after 30 years of holding.
If any SCPI shares are sold for less than their purchase price, the investor will declare a capital loss and will not pay any taxes to the tax authorities. This loss cannot be transferred over to any capital gains from the sale of other SCPI shares, nor to any other taxable income.
How are your capital gains taxed?
The taxable share of the capital gains, after the application of the share holding period rebates, is taxed at the fixed income rate of 19% and the national insurance contributions are calculated at 17.2%. So this is an overall withholding of 36.2%.
When the shares are sold via an SCPI management company, it is the company that declares the capital gains to the tax authorities on behalf of the investor. They also pay the withholding taxes on the share sale price. However, for sales by private agreement, without any intervention from the management company, it is the investor who must complete the declaration forms and pay the tax amount when they register the deed of sale to the tax office.
A surcharge will be due of the net taxable capital gains exceeds a total of 50,000 euro. The rate for this is progressive and it reaches 6% for taxable capital gains of more than 260,000 euro. In this case the overall withholding rate rises to 42.2% (19% income tax + 17.2% national insurance contributions + 6% surcharge).
The same taxation scheme will apply when the SCPI itself sells one of the properties from its corporate assets. In this case the taxable capital gains will be distributed between the shareholders as a ratio of their holding in the SCPI and each must pay the tax amount corresponding to the share of the capital gain they receive.
The property capital gains taxation scheme
If the SCPI places its available funds in financial assets such as Sicav or Shared Placement Funds (FCP), the capital gains generated on the sale of the shares will be distributed amongst the shareholders and taxed in their name. In this case the taxation rules for capital gains from the transfer of tangible assets will be applied. The received gain will therefore be subjected to a single fixed rate withholding tax of 30% including 12.8% tax and 17.2% national insurance contributions as soon as it is received. In all cases the shareholders who wish to do so can opt for the application of the progressive tax brackets rather than the 12.8% fixed rate tax.
As with any real estate investment, there is a risk of capital loss due to changes in the real estate market and currency exchange rates. Income is not guaranteed and may vary up or down depending on the performance of the fund. The SCPI is a long-term investment with a recommended investment horizon of 10 years. Liquidity is limited, the management company does not guarantee the resale of units. And as with any investment, past performance is no guarantee of future performance.