French Wealth Tax Change in 2018

Article by Loic Raboteau, International Legal Advisor and French Property Law Expert, Francophile Law

IT IS IMPORTANT TO GET GOOD LEGAL ADVICE WHEN BUYING A SKI PROPERTY IN FRANCE.

As of January 1^st 2018, the French Wealth Tax, or ISF (Impôt de solidarité sur la fortune) was replaced by a new Real Estate Wealth Tax, the IFI (Impôt sur la fortune Immobilière).

What is the main difference?

Where the ISF was applicable to ALL assets located in France for a non-resident or worldwide assets for a resident in France, the IFI is only applicable to real estate assets. This includes parts or shares of companies (established in France or abroad) which hold property or real estate rights.

What does this mean?

All non-real estate assets such financial wealth (securities, investments, cash etc) or moveable assets (jewellery, furniture, cars, boats etc ) are now exempt from this tax.

How much is the IFI?

The IFI is an annual tax payable when the total of the real estate assets are greater than €1.3 Million. The percentage of tax paid is as follows:

Taxable net Assets (euros) on 1^st January 2018	Tax Rate
Up to €800,000	0%
Between €800,001 and €1,300,000	0.5%
Between €1,300,001 and €2,570,000	0.7%
Between €2,570,001 and €5,000,000	1%
Between €5,000,001 and €10,000,000	1.25%
Above €10,000,000	1.5%

Exemptions

There is a partial 5-year exemption from the tax for individuals relocating to France for their assets outside France. Further items which may be deducted include:

The purchase cost of the property
Maintenance and reparation costs of the property
Extension or refurbishment costs
Property taxes

If your main home is located in France, its value will be reduced by 30% to calculate the IFI.

The 2018 IFI is capped according to the amount of French Tax paid by the tax payer. The combined income tax for 2017 (including social charges) and the 2018 IFI cannot exceed 75% of the income earnt in 2017. Any amount over 75% will be deducted from the IFI.

Additionally, 75% of the value of gifts donated to charity can be deducted up to €50,000.

Commercial are exempt from the tax, as are furnished buy-to-let properties under the status of LMP (location meublée professionnelle) – this does not include leasebacks.

Exemptions also apply to woodlands and rural assets.

Restrictions

The following debts are no longer deductible:

Private loans between members of the same tax households e.g between spouses or parents and children
Private loans between family members from a company controlled by the tax payer or a member of their family, unless the loan has been contracted under normal conditions
Interest-only mortgages (crédit in fine) are no longer fully deducted from taxable real estate and are now depreciable

Tax Household

The taxable assets of the entire tax households are taken into account for the calculation of the IFI. Couples must make a joint declaration, and assets held by minors must also be included.

When individuals have different interest in an property asset e.g. when a parent passes away the surviving spouse may own a life interest (usufruitier) while the children own the freehold (nue-propriétaire), the legal interests of the usufruitier and nue-propriétaire will be taken into account for the determination of taxable assets.

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