Buying a Ski Home in France. A Simple Guide to the New IFI Tax

When it comes to tax, France doesn't have a reputation for efficiency. This is particularly true for wealthy residents whom were hit by the country’s wealth tax on world-wide assets known as the ISF (Impot de solidarité sur la fortune).

On January 1^st 2018, the ISF was changed into the IFI (Impot sur la fortune immobilière) so that now only real estate assets and shares of real estate companies (e.g. from an SCI) will be subject to an annual wealth tax. The thresholds are the same as they were for the ISF.

The French government estimates that the reform will result in around 40% fewer households will pay the wealth tax, meaning citizens who moved elsewhere because of the wealth tax have incentive to move back.

Ski home for sale france wealth tax

How does the IFI Affect Ski Holiday Property Owners and French Residents?

Non-residents with property in France were only liable for wealth tax on assets located in France. This hasn’t changed.
Newly arrived French tax residents have a five-year exemption for assets outside of France. This exemption only applies if the resident has not been a tax resident in France for at least five years prior. After the five-year exemption, French tax residents will incur IFI on all their net real estate assets in France and abroad.

Deductibility of Debt

Only debt for the purchase, maintenance and improvement of the assets can be deducted.
Interest-only loans were once a popular way to minimise the amount of ISF paid as they reduced the equity in the property for the duration of the loan. This is no longer possible. Now, the loan amount will be amortised over the period of the loan. For example, the outstanding amount of an interest-only loan with a 10-year term will decrease by 10% every year. For a 20-year term, the loan amount will decrease by 5% each year.
If the market value of an asset is greater than €5 million, debt exceeding 60% of the market value of real estate assets is only deductible at 50%.
A loan issued by an entity that is directly or indirectly controlled by the taxpayer or immediate family members cannot be deducted from the property value, unless the loan has normal market interest rates and conditions.

Calculating IFI Liability

The threshold, bands and rates remain the same as the were for the ISF, so the tax only applies to net assets of €1.3 million or over.
Assets must be consolidated for all members of the household. This means couples (whether married or not), and assets held by children under 18.
A 30% discount on main residences can be applied if the value of the asset is over the threshold.

Exemptions

Properties used for the taxpayer’s main professional activity are exempt.
Properties which are furnished and rented out are exempt, providing the landlord is a registered professional landlord (LMP).
The exemption of 75% of the value of woodlands.
Tax fonciere is deductible.

IFI Rates for 2018 (for net assets with a value greater than €1.3 million):

Tranche of taxable assets	Applicable Tax rate
> €800 000 and ≤ €1 300 000	0,50 %
> 1 300 000 € and ≤ 2 570 000 €	0,70 %
> 2 570 000 € and ≤ 5 000 000 €	1.0 %
> 5 000 000 € and ≤ 10 000 000 €	1.25 %
Above 10 000 000 €	1.50 %

Determining IFI market value

The onus is on the taxpayer to determine the market value of the property.
The taxpayer can get an evaluation of market price from a notaire or a real estate agent with a knowledge of the local market. The market value of rural properties can be harder to establish and it is a good idea to get multiple valuations done.
Once you have the valuation for a specific year, you can increase or decrease the value each year in accordance with the publicly available property price data provided no huge events take place which dramatically increase or decrease the market value.

Penalties

This type of tax is prone to evasion, and these penalties are frequently enforced by the French government to address these situations.

If you pay the correct amount but are layer, or if the government decides you have undervalued your assets, the initial penalty is 10%. Each consecutive month of delay incurs a .20% penalty.
If you don’t file at all, the additional taxes due can be increased by a maximum of 40%.
In extreme cases, they can impose an estimated tax assessment.