Wealth Tax in France

Understand how wealth tax - the IFI or Impôt sur la Fortune Immobilière - is calculated in France...

Since 1 January 2018 wealth tax is now known as IFI  or Impôt sur la Fortune Immobilière, replacing the previous ISF (Impôt de Solidarité sur la Fortune). This is a tax on immovable property and only real estate will be subject to this new tax. Securities, bank and financial investments, and cash will be excluded. The tax is based on the wealth of the household, including spouse and children. Unmarried couples living together are treated as one household for wealth tax purposes.

Non-residents will only be liable for this tax on their real estate located in France. Residents are subject to their worldwide properties, subject to the provisions of tax treaties.

It should be noted that this new tax is being challenged before the Conseil Constitutionnel, based on the grounds that it will breach the principle of equal tax treatment.

IFI Tax Rates

There will be no change in the tax threshold or the tax rates, which remain the same in 2018. The 30% discount on the main private residence still applies, and premises used for the taxpayer’s main professional activity are exempt from the wealth tax. 

The tax is assessed on the property's market value. There is no legal definition of market value, but it is often referred to as the ‘price it could be expected to fetch on the open market’ that year. The fair market value of an owner-occupied main home may be reduced by 30 percent for wealth tax purposes.

Liabilities such as mortgages and other debts are deductible in arriving at net assets.

For those with assets in excess of €1.3m, the rates and thresholds below apply for 2018.

  • Under €800,000 : 0%
  • €800,001 to €1,300,000 : 0.50%
  • €1,300,001 to €2,570,000 : 0.70%
  • €2,570,001 to €5,000,000 : 1.00%
  • €5,000,001 to €10,000,000 : 1.25
  • €10,000,000 upwards : 1.50%

Payment of Wealth Tax

The wealth tax must be declared at the same time as the income tax. The exact dates for the 2018 declaration are yet to be released.Residents of France submit returns and payments to their local tax office. 

Non-residents submit returns and payments to:

  • Service des impôts des particuliers - Non-résidents
    TSA 10010 - 10 rue du Centre - 93465 Noisy le Grand cedex
  • Tel: +33 (0)1 57 33 83 00 from 09:00-16:00
  • Fax : +33 (0)1 57 33 82 66
  • Email 

Usufruct and Nue-propriété

Where the ownership of a property is split into usufruit (lifetime interest) and nue-propriété (underlying ‘freehold’ interest), the full value of the property (not just the lifetime interest) is assessed on the owner of the usufruit. Accordingly, the owner of the nue-propriété is exempt. The holder of the usufruct is only assessed to wealth tax on the portion of the property over which their entitlement exists.  So, for example, if an individual has an usufruct over one quarter of the property, he will pay wealth tax over one quarter of the value of the property.

Wealth Tax For New Residents of France

The France/UK double tax treaty provides substantial relief from wealth tax for UK nationals. 

For the first five French tax years after becoming a resident of France, wealth tax will only be based on assets in France and all other assets will be ignored. In the sixth year following French tax residence, wealth tax would then be payable on worldwide assets as normal.
If you can arrive in France at the beginning of the France tax year (January-December), you would stretch out the five year exemption period. Some other countries, including Germany, Spain, Canada and the US have a similar provision in their tax treaty. 

75 Percent Income Tax and Wealth Tax Restriction

For individuals who are resident in France, their combined income tax, wealth tax and social charges cannot exceed 75% of their total income for the previous year.

75 percent may sound too high, but this ‘tax cap’ can create attractive tax planning opportunities to mitigate wealth tax by reducing taxable income, but without reducing spendable income. The mechanism is complex, so you need specialist advice to ensure you use it to your advantage.
Where the relevant taxes exceed 75 percent, the taxpayer has to claim a refund of the excess taxes paid using Form 2042 C before 31st December (in respect of excess tax paid in the previous year). There is no ceiling on the limitation under this provision and wealth tax,  income tax and social charges paid over the 75 percent limit can all be reclaimed.

References

The tax rates, scope and reliefs may change.  Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.