Wealth Tax – Impôt sur la solidarité fortune (ISF)
Wealth tax in France is payable by resident households where the total worldwide assets exceed 1,300,000 €. If you are an expat resident in France, or alternatively own property there, it is of great importance that you understand how wealth taxes are structured and calculated.
In order to calculate the tax, you must add up the total value of assets for the household and deduct all outstanding debts and overdrafts as of 1st January each year. If the net value of taxable property exceeds 1,300,000 €, then the first 800,000 € is exempt from tax i.e. chargeable at 0 %. ISF is thus calculated by applying the scale below to each bracket.
The tax bands for ISF as of the 1st of January 2017 are as follows:
|Band of value||Rate of tax|
|Up to 800,000 €||0%|
|800,001 € to 1,300,000 €||0.5%|
|1,300,001 € to 2,570,000 €||0.7%|
|2,570,001 € to 5,000,000 €||1%|
|5,000,001 € to 10,000,000 €||1.25%|
|Above 10,000,000 €||1.5%|
**Depending on who wins the forthcoming elections, we are expecting some changes to the ISF/wealth tax in France
Resident of France
If you are a resident of France, wealth tax is calculated on your worldwide net assets including cash and property owned by the household, as well as financial investments, cars, boats, jewellery, furniture and other valuables. Couples are obliged to make a joint declaration whether they are married or not. Assets held by children below the age of 18 must also be included in the calculation. Please note that Assurance vie policies are liable for wealth tax, except those policies where the assured cannot withdraw some or all of the proceeds.
Expats should also be aware that the Loi de Finances Rectificative which took effect on 31 July 2011, requires pension fund trustees to report UK personal pension vehicles that have French tax-resident beneficiaries to the French fiscal authorities. This means that the market value of the assets, rights or capitalized income on all trusts are now considered as part of an individuals wealth and therein become part of any wealth tax declaration.
Taxes due, bank loans and other debts are all deductible before the calculation of net assets. Those living in France are also entitled to a 30% allowance against the value of their main residence; this concession does not apply to second homes. Neither does the discount apply if the main residence is held through a Société Civile Immobilière (SCI). However, up to 20% allowance may be granted, depending on the shareholding structure.
If you own shares of a property company such as an SCI, your declaration is based on the current value of the underlying property. Loans to an SCI are not deductible and therefore also liable to French wealth tax.
Other allowances include the following:
- A mortgage on a property is deductible from calculation of the property value.
- A discount is permitted for properties with sitting tenants, dependent on the nature and duration of the letting.
- Business assets are in general excluded for the purposes of the calculation.
- Antiques over a 100 years old, works of art, classic cars, the value of artistic, industrial and literary rights are also exempt.
- Investors in small or medium sized European companies can have 50% of the investment deducted for wealth tax purposes.
- Transferring assets to family members in the form of ‘gifts’ and also ‘temporary gifts’ (usufruit temporaire) helps reduce wealth tax. It is important to make sure that any such ‘gifting’ is consistent with your inheritance tax and succession planning.
- As of 2013, a wealth tax ceiling limits total French and foreign taxes to 75% of income. This encourages wealthy individuals to live off the proceeds of capital, leaving income and gains to build up inside private investment funds or Assurance Vie contracts as a way of reducing potential wealth tax liability.
**Note: There is a five year exemption from wealth tax on foreign assets for those moving to France after 6th August 2008. As such, once you become French resident you will only be liable for the wealth tax on those assets located within France for the first five years.
Non-Residents of France
If you are a not a French resident, you are only liable for wealth tax on the net value of assets physically situated in France e.g. property. This means that the value of a ‘second home’ in France would be assessed for wealth tax purposes. Cash and financial investments such as shares and Assurance Vie contracts held in France by non-residents are excluded from the calculation of net assets. This exception however excludes shares held in an SCI.
Beyond this general rule your liability will also be determined by the terms of any tax treaty between France and your country of residence.
How to make a Declaration
Wealth tax declaration of net assets between 1,3000,000 € and 2,570,000 € are declared as part of your French income tax returns, and is to be submitted by French residents before May 27th each year. Declarations of assets above 2,570,000 € should be made on as separate official form (Form 2727), and accompanied by supporting documentation.
Wealth tax declarations are made on a voluntary basis; it is therefore up to each household to assess and determine whether or not they are liable to pay the tax. However, should the tax authorities decide to investigate your particular household and find that you have been negligent in any way in the calculation or payment of wealth tax, they have the power to collect any arrears over the previous 10 years. They also reserve the right to apply penalties if they believe that you have inadvertently underestimated your wealth or been deliberately fraudulent in your declaration.
Please note that the French tax authority possess the details of all property transactions in the country and will therefore be aware of the price you paid for a property.
If you would like to more about reducing your wealth tax in France or have any further queries, please contact us on: [email protected]