The draft Finance Bill 2018 by the Macron government proposes to abolish the existing wealth tax (Impôt de Solidarité sur la Fortune, or ISF) and replace it with a wealth tax on real estate assets (Impôt sur la Fortune Immobilière, or IFI). The new IFI should come into force as from January 1st, 2018.
The IFI applies both to residents and non-residents of France.The IFI taxes French residents only on real estate assets held directly by the tax payers or indirectly through shares in companies holding real estate.
It is not of importance where the properties or companies owning real estate are located (unless tax treaties of course decide that France has no right of taxation). Movable assets (liquidities, shares in companies that do not own real estate, furniture…) are outside the scope of the IFI. Non residents are only taxed on French real estate and shares in companies owning French real estate.
Besides the restricted taxable base the IFI looks very much like the current ISF. The threshold of € 1.300.000 and progressive tax rates are for example exactly the same:
| If the net taxable base of the real estate assets is more than € 1.300.000 the following tax brackets apply: | Tax rate % | Formula (B = net taxable base) |
| Not more than € 800.000 | 0% | (B x 0) |
| Between € 800.000 and € 1.300.000 | 0,5 % | (B x 0,005) – € 4.000 |
| Between € 1.300.000 and € 2.570.000 | 0,7% | (B x 0,007 ) – € 6.600 |
| Between € 2.570.000 and € 5.000.000 | 1% | (B x 0,01 ) – € 14.310 |
| Between € 5.000.000 and € 10.000.000 | 1,25% | (B x 0,0125 ) – € 26.810 |
| More than € 10.000.000 | 1,5% | (B x 0,015 ) – € 51.810 |
French tax residents continue to benefit from a 30% allowance against the value of their main residence. Individuals that become residents of France can benefit from an exemption up till December 31st of the 5th tax year of residency for real estate assets located outside of France.
Debts in connection with the real estate assets are still deductible, but the draft bill foresees in a limitation of deductibility. In my next post I will explain how the Macron government intends to put a hold to tax optimization schemes that use too much deductible debt.
