This is a new wealth tax that applies to people with real estate assets worth more than € 1,300,000. It enters into force as from 1 January 2018. In return, the I.S.F. has just been removed.
I – I.F.I. Bases
- 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.
- 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).
The law incorporates much of the rules previously applicable to I.S.F.
A 30% deduction is made on the market value of the property when its owner occupies it as a principal residence. This allowance is therefore not applicable if a company (for example S.C.I.) owns the property.
Securities listed on a market are valued at the last known price or the average of the last 30 prices preceding the date of taxation.
Liability deductible from the tax base
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.
- Property allocated to a professional activity: Assets must be allocated to the taxpayer’s core business. The buildings assigned to the activity of rental in furnished professionals are exempt. Partnership shares are likewise exempt if the taxpayer carries on his principal activity (industrial, commercial, craft, liberal or agricultural) in that company.
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.
II – Calculation of I.F.I. Tax
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 %
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 is deductible to this tax in France.
III – Reporting obligations
Taxpayers will report the gross value and net worth of their assets on their real estate assets in the annual income tax return (form N ° 2042). They will have to attach schedules on which they will indicate the valuation of the assets.
Non-residents who do not file a tax return in France must complete a special declaration. The deadline for filing this declaration is not yet fixed.
One of our chartered accountants is 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.
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