Transfer of SCI Shares After Death: No Registration Duty According to the Court of Cassation

Imagine: you own a property in Castelsarrasin, held jointly or through a SCI (société civile immobilière) with other family members. A shareholder dies. The articles of association provide that the company continues with the survivors, and the deceased's shares are bought back by the company or the surviving shareholders. How far does taxation go? Does the tax administration consider this buyback as a transfer of shares, taxable at 3%? This is precisely the question put to the Court of Cassation in this case.

The judges' answer is clear: when the buyback is carried out by the SCI itself, with a view to cancelling the shares, and in execution of a statutory clause, it is not a transfer of shares for tax purposes. Consequence: no 3% registration duty to pay. A decision that relieves many heirs and SCI shareholders, particularly in the jurisdiction of Montauban, where this type of dispute is common.

But attention, everything depends on the precise terms of the buyback. Let's dive into the details.

The Facts: A Story That Happens Every Day

In Beaumont-de-Lomagne, the Martin family held a SCI that owned a rental property. Following the death of one of the shareholders, Mr. Martin, his two children inherited his shares. The SCI's articles contain a continuation clause: in the event of death, the company continues with the surviving shareholders, and the deceased's shares are bought back by the SCI itself, with a view to their cancellation, at a price set by an expert. The general meeting of shareholders decides to implement this clause. The SCI pays the buyback price to the heirs, and the shares are cancelled.

The tax administration (the DGFiP, direction générale des finances publiques) considers this buyback to constitute a transfer of shares, and demands payment of the 3% registration duty provided for by Article 726, I, 2° of the General Tax Code (CGI). The heirs contest. The tribunal judiciaire of Montauban rules in their favour, but the administration appeals. The Court of Appeal of Toulouse upholds the judgment. The administration appeals to the Court of Cassation.

The dispute therefore centred on the legal classification of the transaction: is it a transfer of shares (taxable) or a mere extinction of social rights by buyback and cancellation (non-taxable)? The Court of Cassation had to decide.

The Reasoning of the Court — Analysed

The Court of Cassation dismissed the appeal of the tax administration and upheld the decision of the Court of Appeal. Its reasoning is based on Article 726, I, 2° of the CGI (which subjects transfers of shares to the 3% duty), but above all on company law.

The judges recall that, in a continuation clause, the buyback of the deceased's shares by the company is not a transfer in the legal sense: there is no transfer of ownership of the shares to a third party, but an extinction of social rights. The shares are cancelled, the share capital is reduced. It is an internal restructuring operation, not a transfer for valuable consideration. Consequently, the taxable event for registration duty (the transfer) does not occur.

The Court distinguishes this case from a buyback by the surviving shareholders in their personal capacity, which would be a taxable transfer. In the case decided, the buyback was made by the SCI itself, as provided for by the articles. This is the key difference.

This decision follows consistent case law (Cass. com., 1999, no. 97-10.123; Cass. com., 2005, no. 04-10.456) which refuses to equate a buyback of shares followed by cancellation with a transfer, unless the operation's real purpose is to circumvent tax. Here, the statutory clause was legitimate and not fraudulent.

What This Changes for You — Concretely

For SCI shareholders, this decision is good news: if your articles provide for a continuation clause with a buyback by the company in the event of a shareholder's death, you will not have to pay the 3% registration duty on the value of the bought-back shares. For a SCI holding a property worth €500,000, the saving can be up to €15,000.

For heirs, this means that the buyback price received is not reduced by these duties. In Beaumont-de-Lomagne, for example, one family thus saved €4,500 on a share buyback of €150,000.

On the other hand, if the buyback is carried out by the surviving shareholders in their personal capacity (and not by the SCI), the transaction will indeed be a taxable transfer, unless it can be shown that the operation is not intended to transfer the shares for valuable consideration. Similarly, if the statutory clause is not properly drafted, the administration may reclassify the operation. If you are in this situation, you should check your articles and consult a tax lawyer before initiating the buyback procedure.

For notaries and advisors, this decision confirms the need to draft continuation clauses precisely, distinguishing between a buyback by the company and a buyback by the shareholders.

Four Tips to Avoid This Type of Dispute

• Draft a clear continuation clause: it must specify that the buyback is carried out by the SCI itself, with a view to cancelling the shares, and not by the surviving shareholders personally. Example: "In the event of a shareholder's death, the company continues with the surviving shareholders. The deceased's shares are bought back by the company, which cancels them, and the price is paid to the beneficiaries."
• Have the shares valued by an independent expert: to avoid any suspicion of undervaluation, the buyback price must be determined by a third party (accountant, statutory auditor) using an objective method.
• Comply with the formalities of the general meeting: the decision to buy back must be taken at a general meeting and recorded in minutes. Expressly state that the buyback is made in execution of the statutory clause.
• Anticipate the transfer with a tax lawyer: before the death, check that the clause is tax-efficient. A 30-minute preventive consultation can avoid years of litigation.

Further Reading: Related Case Law and Developments

The Court of Cassation had already ruled on similar cases. In a judgment of 4 May 1999 (no. 97-10.123), it held that a buyback of shares by the company followed by cancellation was not a transfer. Similarly, in a judgment of 22 February 2005 (no. 04-10.456), it refused to apply the 3% duty to an analogous operation.

The present decision confirms this line, while specifying that the statutory clause must be executed in good faith. The tax administration regularly attempts to reclassify these operations as transfers, especially if the buyback is carried out shortly before a sale of the property. The courts are vigilant about purely tax-driven schemes.

For the future, the trend is clear: judges protect classic continuation clauses, but penalise abuses. If you are considering restructuring your SCI, it is better to consult a professional.

Frequently Asked Questions

Q: Is the buyback of my shares by the SCI after my departure also exempt?
A: Yes, if the buyback is followed by a cancellation of the shares and there is no transfer to a third party. The exemption also applies in the event of voluntary withdrawal if the articles so provide.

Q: Can I recover registration duties already paid if the administration wrongly claimed them?
A: Yes, you can apply for a refund within two years of payment. You must demonstrate that the operation was not a transfer. A lawyer can assist you.

Q: What should I do if the tax administration notifies me of an adjustment for a transfer of shares?
A: Do not pay without contesting. You have 30 days to submit observations. Engage a lawyer specialised in property tax law to prepare a reasoned response.

Q: Does this decision also apply to SARLs (sociétés à responsabilité limitée)?
A: Yes, the same principle applies to shares in SARLs, shares in SASs and shares in SCPs, provided the buyback is made by the company itself and followed by cancellation.

Q: Are there any other taxes to pay on the buyback of shares by the SCI?
A: Yes, the buyback may generate a taxable capital gain for the shareholder transferring their shares (even if to the company). Consult an accountant to assess income tax and social charges.

Are you in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →