Bring a building to a family real estate company or an LLC, be careful!
The june 30, 2020
The "family" real estate companies and LLCs (Limited Liability Companies) are companies that allow several people to pool real estate.
A person may prefer the incorporation of a company to the direct ownership of real estate if its objective is to facilitate the management and transmission of its assets.
Real estate companies and LLCs share many common points:
- They are formed to manage real estate in the interest of the partners;
- They have legal personality, which means that the real estate brought to them becomes the property of the company. The partners are no longer owners of real estate but of social shares;
- They are subject to income tax and therefore benefit from the capital gains regime;
- Real estate companies and LLCs' shares are subject to the real estate wealth tax.
As we have seen, the real estate companies and LLCs are the subject of contributions.
A contribution is said to be pure and simple when the partner receives social rights in return for his contribution. Conversely, a contribution is made against payment when the contributor, in return for his contribution, does not receive social rights but an immediate consideration which can be a sum of money, any good or an advantage.
The qualification of the contribution is very important from a tax standpoint:
- When an individual makes an outright contribution in a real estate company or LLC subject to IR, no duty is due.
- On the other hand, if an individual makes a contribution for valuable consideration to his company, regardless of the latter's tax regime, transfer duties for valuable consideration may apply. On contributions of real estate, these duties are 5%.
Take the example of Mrs. MATHIEU. The latter owns a house rented bare.
Wishing to facilitate the transfer of her house, Mrs. MATHIEU chooses to set up a real estate company.
HYPOTHESIS 1:
Mrs. MATHIEU contributes her house, valued at € 200,000, to the real estate company and in return receives shares valued at € 200,000. This contribution is pure and simple: it is exempt from transfer tax.
HYPOTHESIS 2:
Mme MATHIEU brings her house to the real estate company. The latter takes out a loan and pays the sum of € 200,000 to Mrs. MATHIEU. As this contribution is made against payment, it is subject to transfer rights. Taxation amounts to € 10,000 (200,000 x 5%).
Note: the purpose of this example is to present the tax consequences of the qualification of contributions and does not take into account in particular the fees of the notary, the formalities of land registration, etc.
Is it strategic for you to bring a building to a company? Are you going to make an outright contribution or for a fee? Finally, rather a real estate company or an LLC?
If you wish to benefit from personalized advice, Wealth A7 advisers are available to help you in your strategy for managing and transmitting your wealth.