SCPI, how can you lighten your taxation load?
SCPI associates are taxed in the same way as if they directly own and rent out a property.
The profits generated by the SCPI shares held by the associate are taxable and classed as property income. A number of solutions exist for reducing the amount of tax paid by investors.
Reduce your taxes by purchasing on credit*
SCPI revenue is subject to a progressive income tax bracket system and a fixed national insurance contribution rate of 17.2%. You could borrow to invest to reduce these taxes, especially if you are already paying a lot of taxes. In this case the annual loan interest payments will be deducted from your taxable revenues.
Reduce your taxes thanks to the advantages of the micro-property owner scheme
To reduce your basic taxable income you could also benefit from the advantages of the micro-property owner scheme if you are the owner of a property that you rent out directly and do not receive more than 15,000 euro in rent per year. In this case the tax authorities will apply a fixed rate rebate of 30% to your rental income so you will be taxed on 70% of that amount.
SCPI revenues received after January 2019 are now subject to tax-at-source. The taxation authorities debit a monthly, or quarterly, national insurance contributions advance amount from your bank account. This amount will be calculated on the basis of your most recent rental income declarations, updated annually in September.
Reduce your taxes by purchasing via a life insurance policy
If you invest in an SCPI through a life insurance policy, the revenue you receive will not be taxed or subject to national insurance contributions as long as that money remains invested. It will only become taxable when you withdraw your participation.
However at that time you will benefit from tax benefits. Depending on the age of your policy, the date of your payments and your outstanding amount placed in life insurance, you can opt for a fixed tax rate of 7.5%, 12.8%, 15% or 35% instead of the application of the progressive income tax bracket system. In addition to this, if your life insurance policy is at least 8 years old, you will benefit from tax rebates and be exempt from taxes up to 4,600 euro per year for the received revenue, and double that if you are married or in a legal partnership.
Reduce your taxes by purchasing as a bare owner
The ownership of SCPI shares can be divided between a usufructuary and a bare owner for a fixed period of time (generally 10 to 15 years). This can be very interesting for participants who pay a lot of tax and still wish to invest in property and do not need any short-term revenues.
On one hand, purchasing bare ownership means that you only pay the part of the price corresponding to bare-ownership. On the other hand, during the division period, the bare owner receives no rental income and therefore pays no income tax or national insurance contributions, and their shares are not included in their assets for which property tax (IFI) will be due. However, the capital gains from sales are taxable for a bare owner. At the end of the division period, the bare-owner recovers the full-ownership of the shares (and the revenues they generate) without having to pay any fees or taxes to the taxation authorities.
Patrimmo Croissance, a Primonial REIM SCPI
The Primonial REIM SCPI Patrimmo Croissance was created in 2014; it mostly invests its capital in bare ownership of residential units which will be rented out as social housing or intermediary housing.
Primonial REIM makes a priority of locating the programs in residential areas with significant housing demands.
The usufruct us acquired by social landlords who take charge of managing the rental of the properties within the framework of a property division convention agreed with the SCPI.
Each property is usually sold at the end of the division period. Most of the income from this sale will then be reallocated for further residential bare ownership acquisitions such that you can potentially benefit from the changes to the share values.
Good performance in spite of the crisis
Over the last 30 years, SCPI have never generated average returns below 4%*. In 2019, the average market value distribution rate (TDVM) was 4.40%.
In spite of the public health crisis and the difficulties faced by tenants unable to make their payments, the perspectives remain positive for 2020. For example, the effects of the crisis on dividend pay-outs should be quite limited for Primonial REIM Group SCPIs. For 2020 as a whole, the company plans to distribute additional regular revenues to each associate, without any negative impact on the values of the shares of its SCPIs.
Since they are not listed on the financial market, they are less volatile than other types of investment whilst still generating interesting returns.
*Investing on credit involves risks: a loan commits the subscriber and must be repaid. Check your repayment capacity before you commit. The subscriber must not take into account exclusively the income from the SCPI, given their random nature, to meet his repayment obligations.
Prior to the subscription, the saver should review the situation with his usual advisor who can advise him on an investment suited to his personal situation and his objectives.