Wealth tax in France is payable by resident households where the total worldwide properties exceed 1,300,000 €. Therefore, if you are an expat resident in France or own property there, you need to understand how wealth taxes are structured and calculated.
Wealth Tax – Impôt sur la fortune immobilière (IFI)
The Loi des Finances 2018 has limited wealth tax to property assets and real estate investments (net of associated loans). The replacement tax has been renamed from ISF (impôt sur la fortune) to IFI (impôt sur la fortune immobilière) i.e. French “Property Wealth Tax”.
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 January 1st each year. If the net value of the 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 IFI 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%
Resident of France
If you are a resident of France, wealth tax is calculated on your worldwide properties. Assets liable for wealth tax are now limited to land & buildings (Principal & secondary residences, rental property). Financial investments, jewellery, furniture, cars, boats, etc. are now excluded.
Couples must make a joint declaration whether they are married or not. Assets held by children under 18 must also be included in the calculation. Children of adult age, even though they may be part of your household for income tax purposes, are separately liable for the value of their assets if greater than €1.3m.
**Note: There is a five-year exemption from wealth tax in France on foreign assets. Once you become a French resident, you will not be liable for wealth tax on those assets in France for the first five years.
Deductible allowances for wealth tax in France
Taxes due, bank loans and other debts are deductible before calculating 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.
Wealth tax in France does not apply to company or commercial assets. However, if you own shares of a property company such as a société civile immobilière (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 the property value calculation.
- A discount is permitted for properties with sitting tenants, dependent on the nature and duration of the letting.
Transfer of assets to reduce wealth tax in France
Transferring assets to family members as ‘gifts’ and ‘temporary gifts’ (usufruit temporaire) helps reduce wealth tax. However, ensuring that such ‘gifting’ is consistent with your inheritance tax and succession planning is important.
Tax ceiling (plafonnement ISF) at 75% of income
The wealth tax ceiling (plafonnement ISF) 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 to reduce potential wealth tax liability.
Overseas pension transfers and wealth tax in France
Many expats transfer their UK pension to a QROPS when living in France. As mentioned above, under the new IFI rules, financial investments, including pensions, are now excluded from wealth tax.
Non-Residents of France
If you are 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 the value of a ‘second home’ in France would be assessed for wealth tax purposes. Any tax treaty between France and your country of residence will determine your liability.
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 (in the new section called 2042-IFI) and is to be submitted by French residents before May 27th each year.
Wealth tax declarations are made voluntarily; it is, therefore, up to each household to assess and determine whether or not they are liable to pay the tax. You should note that the French tax authority possesses the details of all property transactions in the country and will therefore be aware of the price you paid for a property.
Should the tax authorities decide to investigate your particular household and find that you have been negligent in calculating or paying wealth tax, they can collect any arrears over the previous ten years. They also reserve the right to apply penalties if they believe you have inadvertently underestimated your wealth or been deliberately fraudulent in your declaration.
The period for the tax authorities to question valuations or omissions for wealth tax in France is as follows:
Assets in France
- Three years if the asset description on the wealth tax form was sufficiently precise, requiring no further research
- Six years if the description was insufficient or omitted
- Ten years if there was intentional fraud
Assets outside France
- Three years if the asset description on the wealth tax form was sufficiently precise, requiring no further research
- Ten years in all other circumstances
If the authorities consider that you have underpaid wealth tax, they can claim:
- the additional wealth tax that should have been paid
- Ten years in all other circumstances
- annual interest on the unpaid wealth tax (approx 4% pa) as from the initial due date
- a penalty of 10% (on the additional tax due) for late payment
- an increased penalty of 40% (on the additional tax due) if they consider that you have not acted in good faith (mauvaise foi)
- an increased penalty of 80% (on the additional tax due) if they consider you have used fraudulent techniques to hide assets
Contact Us
If you would like to know more about reducing your wealth tax in France or have any further queries, please get in touch with us at info@axisfinance.com
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