Article written on 2018, updated on April 2024
The real estate wealth tax (I.F.I.) is an annual tax payable by individuals holding, on January 1st of the tax year, net taxable real estate assets greater than an amount set at €1.3 million.
The taxpayers affected by this tax are the following:
- Individuals having their tax domicile in France, on their real estate and real estate rights, held directly and indirectly, located in France or outside France;
- Individuals who do not have their tax domicile in France, on their real estate and real estate rights, held directly and indirectly, located in France.
Individuals who transfer their tax domicile to France after having been tax domiciled abroad for the previous 5 calendar years are only temporarily taxable on their property and real estate rights located in France.
I – The definition of the tax household concerned by the I.F.I.
Only natural persons are taxable at the I.F.I. The declaration must be made at the tax household level including:
- Married couples, regardless of their matrimonial regime with the exception of spouses separated by property and not living under the same roof and spouses undergoing legal separation or divorce and residing separately;
- People linked by a PACS;
- People living in notorious cohabitation.
Property belonging to minor children are taxed with that of their parents who have legal administration of their property.
II – I.F.I. Bases
1 – Tax base
Real estate and real estate rights:
The tax base is the net value on January 1st of the tax year of all real estate owned by a person (or two persons living together married or not) and their minor children.
The tax administration extends the notion of ownership of property to real estate rights held through companies or any other structures, French or foreign, without legal personality.
The following are thus assimilated to the direct ownership of real estate:
- The holding of shares in joint ventures;
- The holding of shares in real estate co-ownership companies for the buildings corresponding to the rights of the taxpayer in the company;
- The holding of assets through trusts.
Shares of companies:
- Definition: These are shares of companies or any other body established in or outside France belonging to taxable persons, representing real estate held directly or indirectly by the company or the body. Only the value of shares represented by taxable real estate is kept in the base of I.F.I.
- Exclusion of buildings assigned to a professional activity: For the calculation of the taxable portion of the shares of companies, we do not retain properties held by the company or the rights held when these buildings or rights are allocated to the commercial, industrial, artisanal, liberal or agricultural activity of the company holding them.
Definition of the professional activity:
The professional activity defined by the law (which exonerate the buildings concerned) includes operational activities. Thus, a company engaged in its own asset management is not considered as professional.
Holding companies are considered as commercial companies when they actively participate in the conduct of the corporate group policy and render administrative, accounting, legal and other services to their subsidiaries.
Special cases:
- The assets encumbered with a usufruct are taxed at the usufructuary for the freehold value.
- Assets placed in a trust are included for their market value in the assets of the settlor (or of the beneficiary deemed to be a settlor).
2 – Evaluation rules
Buildings and real estate rights must be valued according to their market value on the day of the event giving rise to the tax, i.e. on January 1st of each year.
A 30% deduction is made on the market value of the property when it is occupied as a principal residence by its owner.
Likewise, a discount of 20% to 40% on the market value of the property may be applied when this property is rented or, under certain conditions, held in joint ownership.
Listed securities must be valued using one of the following two methods:
- spot price of the last quotation of the year preceding the year of filing of the declaration;
- or average of prices over the last thirty days of trading.
Unlisted securities are in principle valued at their market value determined primarily by reference to the price set during another comparable transaction.
3 – Liability deductible from the tax base
Only certain debts relating to taxable assets are allowed as deduction, in proportion to the fraction of their taxable value.
To be deductible, debts must exist on January 1st of the tax year, be contracted and paid by the taxpayer and be related to taxable property.
The debts must correspond to expenses of acquisition of real estate or shares of companies, to expenses of maintenance of repair or extension. We can also deduce due taxes, these taxes must be generated by the property.
Finally, the theoretical IFI is also part of deductible debts.
4 – Exempt assets
Property allocated to a professional activity:
Assets must be allocated to the taxpayer’s core business. Partnership shares are likewise exempt if the taxpayer carries on his principal activity (industrial, commercial, craft, liberal or agricultural) in that company.
Buildings held directly or owned by the taxpayer and used for its furnished rental activity are totally or partially exempt from IFI if the following conditions are met:
- the owner, who carries out this activity as his main activity, generates more than €23,000 in annual revenue;
- and he withdraws from this activity more than 50% of the income including the tax household, within the meaning of the IFI.
Taxpayers who carry out the activity of renting commercial or industrial establishments equipped with the furniture or equipment necessary for their operation are exempt on the value of these buildings. This activity must constitute their main activity.
Properties held by companies subject to corporation tax and securities representing these same properties are exempt if the property is allocated to the professional activity. The exemption is subject to conditions of exercise of management function within the company by the owner of the shares and a minimum percentage of ownership of the capital. We are at your disposal, if you think you hold exempt units, to study your particular situation in order to confirm or not the exemption.
Other properties:
Other real estate may be totally or partially exempted, these are:
- Wood and forests;
- Properties leased by long term rural lease;
- Actions of farmland groupings.
III – Calculation of I.F.I. tax
1 – Tax scale
The rate based on the taxable net worth of the assets is as follows:
-Until € 800 000……………………………….…………………………….0%
-Greater than € 800 000 and up to € 1 300 000………………0.50 %
– Greater than € 1 300 000 and up to € 2 570 000….………0.70 %
-Greater than € 2 570 000 and up to € 5 000 000……..……1.00 %
-Greater than € 5 000 000 and up to € 10 000 000…………1.25 %
-Greater than € 10 000,000………………………………………….…1.50 %
2 – Tax reductions and caps
The taxpayer may deduct 75% of the donations made to bodies defined by law up to the limit of € 50,000.
Taxpayers domiciled in France may reduce I.F.I. of the amount of the difference between:
- The total amount of taxes paid in France and abroad on the income of the previous year, and,
- 75% of the previous year’s global revenues.
The amount of taxes equivalent to I.F.I. Paid outside France on real estate located outside France is deductible to this tax in France.
IV – Reporting obligations
Taxpayers filing a tax return in France must file a 2042-IFI or 2042-IFI-K declaration. Non-resident taxpayers (or adults attached to their parents’ tax household) who do not file a tax return in France must provide a 2042-IFI or 2042-IFI-SK declaration, accompanied by a 2042-IFI-COV declaration.
Regarding the information to be provided in each of these declarations as well as the filing deadlines, we suggest you consult our article entitled OVERVIEW OF THE PRINCIPAL INFORMATION TO BE INDICATED ON THE 2042-IFI PRINT (TAX ON REAL ESTATE FORTUNE) in this same website.
Our chartered accountants are of course at your disposal to answer any question concerning this new tax that concerns any resident or non-resident who owns real estate in France.
