Investing in an SCPI (real estate investment trust) through a life insurance policy is a way to diversify your assets and grow your savings. This approach is quite different from investing directly in an SCPI and has specific characteristics that you should understand beforehand.
- Instead of holding SCPI shares and being a partner, you purchase a multi-asset life insurance policy that includes SCPI investments in the form of unit-linked funds. Your insurer owns the shares and manages your investment.
- You do not receive the income generated by renting out real estate assets directly. Instead, this income is credited to the life insurance policy.
- You benefit from more favorable tax treatment (especially after 8 years into the contract) than the property income tax that applies when holding SCPI shares directly.
- On the other hand, the return on this type of investment may be moderate and limited—either by the insurer, if it chooses to redistribute only a portion of the dividends, or due to the cumulative effect of fees (specific to the SCPI and life insurance).
Investing in SCPIs: Features and How They Work
Investing in an SCPI is one of the tools available for managing and diversifying one’s assets, allowing investors to grow their savings. It enables investors to invest indirectly in rental real estate by purchasing shares and becoming a partner in the SCPI.
The Role of the Management Company
The SCPI is managed by a management company, which collects funds from investors, carries out real estate transactions, and manages the rental properties.
The Different Types of SCPI
There are three main types of SCPI, which differ in terms of their investment strategies and the nature of their real estate assets.
- A yield-oriented SCPI aims to generate rental income. It owns buildings, offices, and retail spaces.
- A tax-advantaged SCPI is linked to a tax program (such as Denormandie, Malraux, or “déficit foncier”), which often involves older properties located in historic preservation districts or requiring major renovations. It allows investors to benefit from tax breaks.
- The purpose of a capital appreciation or capitalization SCPI is to generate maximum capital appreciation upon the resale of real estate assets. It purchases undervalued properties and enhances their value.
Investing in SCPIs
Investing in an SCPI means purchasing shares in a real estate investment trust (SCPI) and becoming a partner. These shares allow you to earn potential income (known as dividends) based on the amount of capital invested. In fact, the SCPI distributes the revenue generated from leasing properties and collecting rent to investors on a monthly or quarterly basis.
Methods of Acquisition
You can purchase SCPI shares in several ways: with cash, on credit, or through a life insurance policy. This last option is offered by banks or insurance companies.
The Unique Features of SCPI Investments in Life Insurance Policies
Investing in an SCPI through a life insurance policy is different from a traditional investment in which you purchase shares directly.
SCPI and Life Insurance
In practical terms, you purchase a multi-fund life insurance policy that includes SCPI funds in the form of unit-linked policies, selected by your insurer. By doing so, you authorize the insurer to invest in SCPI on your behalf.
You do not directly hold the shares, but rather investment units. Your insurer owns them and is responsible for distributing any dividends to the policyholders of life insurance contracts. It may therefore decide to distribute only a portion of the earnings (between 85 and 100 percent, depending on the company).
In addition, you do not receive the dividends directly. They are reinvested in the life insurance policy.
SCPI Through Life Insurance or Directly: What Are the Differences?
When you purchase shares directly, you own them and become a partner in the SCPI. You receive income monthly or quarterly (you may qualify for a tax benefit or realize a capital gain, depending on the type of SCPI).
Dividends received directly from SCPI shares are considered real estate income and are subject to specific taxation (the “micro-foncier” or “réel” tax regime). Dividends received through a life insurance policy are subject to life insurance taxation, which is more favorable than the taxation of real estate income.
Differences Between Direct SCPI Investments and Life Insurance
Why Invest in SCPIs Through a Life Insurance Policy?
This type of investment combines the benefits of investing in an SCPI with those of life insurance. But it also has its own limitations.
Wealth Management Goals
Purchasing life insurance—whether or not it includes shares in a real estate investment trust (SCPI)—can be part of various wealth management strategies.
Building up capital over the medium or long term
The investor does not touch the invested funds, even though he or she can withdraw the money at any time.
Planning for Retirement
Savers can supplement their retirement income by making withdrawals or converting the principal into a life annuity.
Diversifying Your Portfolio
It is recommended that you not invest all of your savings in a single type of investment vehicle in order to diversify risk and reduce your dependence on a single market or sector.
Passing on assets to the person of your choice
The beneficiary clause allows you to designate a person who will receive the death benefit upon the death of the life insurance policyholder, outside of the legal estate.
Benefits
Investing in SCPIs through a life insurance policy gives you access to rental real estate without having to deal with the burdens of property management. It also allows you to grow your savings and manage your assets in line with your goals.
In addition, you benefit from the more favorable tax treatment of life insurance and good liquidity for the shares. If you want to cancel your life insurance policy and sell your SCPI shares, the insurance company handles everything, whereas selling them can be a lengthy and complex process when you hold the shares directly.
Disadvantages
The return on your investment may be affected by the terms of your life insurance policy and by management fees. The insurer may choose to distribute only a portion of the dividends (85%, for example). It is important to thoroughly research the terms and potential returns beforehand.
In addition, fees can be a significant factor. On the one hand, the SCPI’s management company charges management fees, which it automatically deducts from the distributed rental income, as well as entry and exit fees. On the other hand, the insurance company also charges fees for managing your investment.
Finally, there aren't many SCPI investments available through life insurance policies, which limits the options and makes it difficult to compare them.
What are the fees associated with investing in an SCPI through a life insurance policy?
There are several fees associated with an SCPI investment vehicle within a life insurance policy:
- those related to the SCPI: subscription fees, annual management fees, and disposal fees upon resale;
- those charged by the insurer: sales charges, trading fees, and management fees.
This accumulation of fees can reduce the profitability of an SCPI investment.
What are the average returns on SCPIs in life insurance policies?
It is important to consider the average return on SCPIs. Since life insurance is merely a vehicle for accessing this investment, it has no impact on the SCPI’s own performance.
According to ASPIM (the French Association of Real Estate Investment Companies), the capitalization-weighted distribution rate for all categories of SCPIs combined is 4.91 percent.
What are the tax implications of investing in an SCPI through a life insurance policy?
In a life insurance policy, the returns generated by the SCPI investment vehicle are taxed only at the time of a partial or total withdrawal of the funds available in the account (no taxation during the term of the policy). They are subject to a one-time flat-rate tax (PFU), the rate of which varies depending on the investment term and the amount of payments made into your policy.
PFU Rate for Life Insurance Policies
In addition, after holding the life insurance policy for eight years, you are entitled to an annual deduction of €4,600 (or €9,200 for a married couple or civil partners filing a joint tax return) on the gains at the time of withdrawal.
Taxation for Direct SCPI Holdings
Dividends received from a direct SCPI investment are considered real estate income. They are subject to the progressive income tax schedule (at rates of 11%, 30%, 41%, and 45%) and to social security contributions at a rate of 17.2%.
The tax regime applied depends on the annual gross amount of property income.
- The micro-property tax regime applies to income of less than €15,000 per year. It provides for a flat-rate deduction (reduction) of 30% of the amount, which lowers the taxable base.
- The actual income method applies to real estate income exceeding €15,000 per year. It allows for the deduction of actual expenses (renovations, property tax, loan interest, etc.) from the income.
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