REAL ESTATE WEALTH TAX
Category: Finance > Finance | 19th Apr, 2021
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REAL ESTATE WEALTH TAX (IFI) January 2020
After a few changes in France’s wealth tax rules over the past 5-10 years, the new Macron government did away with the previous wealth tax in 2018 and replaced it with a real estate wealth tax, called “IMPOT SUR LA FORTUNE IMMOBILIERE” or IFI for short.
SO WHAT ARE THE PRINCIPAL CHANGES FROM THE ORIGINAL WEALTH TAX (ISF)?
Previously, residents were taxed on the value of their worldly assets when the net value of those assets exceeded 1.3 million Euros. This included not only worldwide property but also capital investments, endowment policies, pension pots, money in the bank, vehicles, yachts, planes, jewellery, gold, race horses, and so on.
Since January 2018, the basis of the wealth tax calculation is made purely on the value of real estate assets such as :
personal real estate property*
*it should be noted that there is an allowance of 30% on the value of your principal residence
agricultural land, pasture or woodland, building land
shares in property companies and shares in any company where property is owned directly or indirectly by the company
any other property-related assets (including life interest in property)
property held in a trust
The wealth tax threshold remains the same at 1.3 million Euros net of mortgage and the method of calculation of the tax also remains the same (see full details below).
WHO IS LIABLE FOR WEALTH TAX & ON WHAT ASSETS?
If you are French resident, your net worldly real estate assets are taken into account for the calculation of your French Wealth Tax** and if you are non-resident, only your net French real estate assets are taken into account. The value is determined as at 1 January of the year of declaration.
**New French residents have a 5-year transitional period where they are liable for Wealth Tax only on the net value of their French real estate assets and after 5 years, this is extended to their worldly real estate assets.
Wealth Tax is calculated per household – for married couples or people living together, the total value of the assets is taken into account; this can only be divided between owners where they are divorced or separated and can justify that they live apart.
Certain assets are exempt from wealth tax, such as real estate property owned and used for the principal activity of the taxpayer, property ownership without life interest (nue-propriété), rural properties rented on long-term lease and all other assets unrelated to real estate property.
NB It should be noted that shares in small businesses (such as FIP, FCPI and FCPR) that were previously specifically used to reduce wealth tax are no longer exempt from wealth tax and will be included in the basis of the taxation in relation to the proportion of property-related assets within those businesses.
Once you have calculated the gross value of your assets, the following debts can be deducted :
ONLY DEBTS RELATED TO THE REAL ESTATE PROPERTY are now deductible :
taxes foncières (less tax for refuse collection) payable in the year of declaration related to the properties declared (taxe d’habitation is no longer a deductible debt)
outstanding mortgages/bank loans related to the property purchase, construction, renovation or extension***
***It should be noted that certain types of mortgages/loans are no longer deductible, including any loans where the taxpayer has an interest in the lending party (company shareholder, close family relation, etc) and for interest-only loans, there is now a formula to calculate a theoretical annual repayment, meaning that the capital outstanding will be seen as diminishing over the period of the loan!
PROGRESSIVE SCALE FOR CALCULATION OF WEALTH TAX (unchanged from 2018, in fact since 2014) In 2020 the following applies :
If your net real estate assets are valued at less than 1.3 million Euros, you have no wealth tax to pay and no declaration to make
However, if your net real estate assets are valued at in excess of 1.3 million Euros, you will have to pay wealth tax on everything* over and above 800,000 Euros and you then pay progressively according to the following table : (****see notes below)
PROGRESSIVE SCALE OF TAXATION – REAL ESTATE WEALTH TAX (IFI)
Total net value of assets not exceeding 800,000€ = 0%
Total net value of assets between 800,000€ & 1,300,000€ = 0.5%
Total net value of assets between 1,300,000€ & 2,570,000€ = 0.7%
Total net value of assets between 2,570,000€ & 5,000,000€ = 1.0%
Total net value of assetsbetween 5,000,000€ & 10,000,000€ = 1.25%
Total net value of assets above 10,000,000€ = 1.5%
****REDUCTION WHERE INITIAL THRESHOLD IS JUST EXCEEDED
A reduction is applied where the net value of assets just exceeds the threshold (between 1.3 million and 1.4 million Euros), calculated in the following manner :
Fixed figure of 17,500€ less 1.25% of the net value of assets
Net value of assets = 1.35 million Euros
1.25% x 1.35 million = 16,875€
17,500€ – 16,875€ = 625€
Gross wealth tax = 2,850€ (50,000 x 0.7% = 350€ + 500,000€ x 0.5% = 2,500€)
Therefore : 2,850€ – 625€ = 2,225€ NET wealth tax due
It is also possible you may be eligible for a reduction if you give to charity (residents only).
WEALTH TAX IS CAPPED (since 2014) – RESIDENTS ONLY
Real estate wealth tax is still capped, when you are French resident, according to the accumulation of your taxes :
> the total amount of your income tax and social charges from 2019, added to your real estate wealth tax liability for 2020 cannot exceed 75% of your global revenue earned in 2018 (and so on each year). Should the amount exceed this threshold, it is the real estate wealth tax that will be reduced accordingly.
METHOD OF DECLARATION
Previously, declarations were made at different times and in different ways according to the net value of the taxpayer’s assets. Since January 2018, all real estate wealth tax declarations will be the same for every taxpayer :
> The gross and net values of real estate assets will be declared within the income tax return in MAY each year and an annex will be completed with the breakdown of those assets and debts The wealth tax will be due on receipt of the tax bill rather than at the time of the declaration!
If you would like more specific information related to your personal circumstances, or a simulation of your eventual liabilities, please do not hesitate to contact us. Please do the same with regards to a quote for our fees related to real estate wealth tax returns, as these will vary according to your circumstances.
Please note that this information sheet is correct at the time of being drawn up, information taken directly from the French government website and official documentation published to date. The definitive legal text of the 2020 French Finance Law has not yet been published and this information sheet is subject to modification at that point.
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