As of January 1, 2018, the French Wealth Tax system Impot sur la Fortune (I.S.F.) was superseded by the Impot sur la Fortune Immobilière (I.F.I.). An overview of the most important changes is given below.
Whereas the ISF was levied on the net personal (worldwide) wealth over the threshold of 1.300.000€ , the new IFI is only concerned with real estate assets and investments.
This is good news for people who have large car collections, art works or other investments, as these are now exempt from this tax
A distinction is made for residents and non-residents:
- Resident– for French residents the whole of their worldwide real estate assets and investments will be taken into account.
- Non-Resident– for non-residents only the real estate assets in France are considered, subject to the terms of any tax treaty between your home country and France.
The assets that are taxable under the IFI include:
- Principal residence, second homes, land, and rental property
- Shares held in French property companies, the so-called sociétés civiles immobilières (SCI);
- Shares held in property funds, such as SCPI (sociétés civiles de placement immobilier) and OPCI (organismes de placement collectif en immobilier), including those held via an assurance vie policy;
- Shares held in companies up to the value of their property, where you hold at least 10% of the equity.
Business property assets are exempt, but only if:
- They are actually used in the exercise of a business activity;
- The activity is exercised by the owner or their partner;
- It is the main activity of the owner;
- The property/investment is necessary for the exercise of the business activity
Valuation of Assets
- The value of the assets is as at 1st January of the tax year.
- The principal residence is granted a 30% discount on its fair market value
- Property that is rented out is normally granted a 20% discount
Debts are deductible if they existed on January 1st of the tax year, that they are the responsibility of the owner, and relate to the taxable assets.
Debts that are taxable include those for the purchase, improvement or maintenance of property, as well as debts in relation to the purchase of property investments.
In the old ISF it was common practice to take out interest-only loans in order to reduce the wealth tax. Under the new IFI this strategy will no longer work with the same efficiency: if a repayment date was set, the loan will have to be amortised over the number of years left running, e.g. a 10 years interest-only loan would see an obligatory 10% decrease in value every year.
Loans without repayment date will be reduced by 5% each year by default, so a maximum run time of 20 years is to be reckoned with.
Another important change is in case the value of the property assets exceeds €5 million and the amount of the debt exceeds 60% of the value of the assets: the amount of the debt exceeding this threshold is only 50% deductible.
The annual rates are given in the figure below
Dealing with wealth tax issues is complicated, in general it is advisable to consult a tax expert like e.g. Maitre Mulder (see website here)