Are you aware of the significant changes in France’s wealth tax landscape? In 2018, the country introduced the Impôt sur la Fortune Immobilière (IFI), replacing the solidarity wealth tax (ISF). But what does this mean for property owners? Let’s explore the implications of IFI and how it affects non-residents.
Understanding the shift from ISF to IFI
In 2018, France’s wealth tax landscape underwent a significant overhaul with the introduction of the Impôt sur la Fortune Immobilière (IFI), which replaced the solidarity wealth tax (ISF). A key distinction between the two taxes lies in their scope: IFI specifically targets real estate assets, encompassing both direct and indirect investments in property and real estate companies. This reform aims to stimulate economic growth in France by attracting investors.
Previously, the old wealth tax (ISF), which taxed worldwide net assets, had a reputation for pushing away talent, with high-profile individuals like Yannick Noah leaving France due to its unfavorable tax climate. So, what implications does the introduction of IFI hold for property owners, particularly non-residents? Let’s examine the effects of IFI on the French property market.
Buying a property in France can trigger significant tax obligations, particularly with regards to IFI. – Marc Timmermans, Partner, Tax/Corporate
How does IFI affect non-residents?
The switch from ISF to IFI did not induce many changes for non-residents, as they are still taxed similarly to before the reform, except regarding the deductibility of a range of debts.
For those who recently moved to France and became tax residents, a five-year exemption for foreign-held assets remains in place. However, this exemption applies only if the individual hadn’t lived in France for the five years prior to regaining their tax resident status. After this five-year exemption period, French tax residents are liable for IFI on all their net real estate assets and direct and indirect real estate rights, both in France and abroad.
What debts can you deduct from your gross real estate value?
To calculate IFI, you’ll need to determine your real estate net assets by deducting eligible debts from the gross value. Only debts incurred for purchasing the real estate or for maintenance and improvement of the real estate assets can be deducted.
If a taxpayer’s real estate assets’ market value exceeds €5 million, any debt surpassing 60% of the market value is only 50% deductible. Additionally, loans from entities directly or indirectly controlled by the taxpayer or their immediate family members cannot be deducted.
What's the IFI tax basis?
To be applicable, your real estate net assets must reach or surpass €1.3 million. All household members’ assets must be added, and couples, irrespective of marital status, are required to file jointly.
It’s crucial to understand the applicable rules and exemptions to avoid unexpected tax surprises. – Marc Timmermans, Partner, Tax/Corporate
What exemptions and deductions are available?
Certain assets are exempt or partially exempt from IFI, such as:
- Primary Residence: 30% discount on market value, provided it’s the domicile where you spend most of the year (at least 8 months)
- Professional Real Estate: exempt if used for business purposes, such as furnished rentals with a registered professional lessor status (LMP)
- Woodland: 75% exemption
- Charitable donations: 75% tax reduction, capped at €50,000
What are the IFI tax rates?
IFI tax rates range from 0.5% to 1.5%, depending on the net asset value:
- €800,000 to €1,300,000: 0.5%
- €1,300,000 to €2,570,000: 0.7%
- €2,570,000 to €5,000,000: 1%
- €5,000,000 to €10,000,000: 1.25%
- Above €10,000,000: 1.5%
How do you value your real estate assets?
The taxpayer has to ascertain the market value of their property as of January 1st of the relevant year. Options for valuation include:
- Analyzing the French tax administration database
- Hiring a real estate agent
- Consulting an expert
Determining the accurate valuation of rural properties can be challenging due to a lack of comparable properties. In such cases, getting opinions from two or more local agents is advised.
What are the consequences of non-compliance?
Failure to file IFI returns or underestimating asset values can result in penalties, including:
- 10% penalty on due tax
- Additional 0.20% penalty per month of delay
- Up to 40% or 80% of the due amount for intentional non-compliance
When are IFI returns and payments due?
IFI returns are due alongside income tax returns, typically in May or June. Payment is due in November, with potential penalties for late payment. For more information on French tax deadlines, visit the official French government website. By understanding the implications of IFI and seeking professional advice, you can ensure compliance with French tax regulations and optimize your tax strategy.
If you’re considering setting up a company in France or have business and commercial activities related to your French property, our company setting-up and business and commercial issues pages provide valuable insights and expertise. For personalized tax assistance, whether as an individual or corporate entity, our tax assistance – individuals and corporate page offers comprehensive guidance.
If you’re dealing with debt issues related to your French property, don’t hesitate to reach out to our expert team for guidance. We’re here to help you navigate the complexities of French tax law and ensure your financial well-being.
Get expert advice on IFI and French property tax
When buying a property in France, it’s essential to consider the potential implications for property wealth tax, as this significant investment can trigger additional tax obligations. If you’ve been navigating the complexities of real estate tax treatment in France, as outlined in our article on IFI, and have further questions or concerns, My French Lawyer‘s network of registered lawyers is at your disposal. We will connect you with the best lawyers to handle your situation and secure your interests. To get personalized advice and guidance on navigating French property taxes, book a consultation with one of our partner lawyers today.