Understanding French Wealth Tax: Are You Liable?

 

Essential Reading

Understanding French Wealth Tax: Are You Liable?

If you’re a High-Net-Worth Individual (HNWI) or property investor and you live in France or have French property or real estate investments, you may find that you are liable to pay French Wealth Tax—Impôt sur la fortune immobilière or IFI. Here’s what you need to know.

What is French Wealth Tax or IFI?

Wealth tax or Impôt sur la fortune immobilière (IFI) is a tax levied on individuals owning high-value or high combined-value real estate in France. The IFI is a progressive tax payable by French residents (and sometimes non-residents too – more on that in a moment) with worldwide real estate assets valued over €1.3 million.

Introduced in 2018, the IFI replaced the previous Impôt de solidarité sur la fortune (ISF), which had been in place since 1989. While the previous tax (ISF) took into account all assets, including property, savings, investments, and other assets, the reformed tax is now only applied to real estate assets.

Long regarded as one of France’s most controversial taxes, it’s often been a sticking point for wealthy expats looking to move or invest overseas, as well as coming under fire for being a tax that targets residents who own ‘capital’ but do not necessarily receive high incomes. Despite the bad reputation, it’s important to remember that this tax is only paid by a small number of the wealthiest French households (around 350,000 each year), and the majority of these pay comparatively minimal amounts in ISF (some 250,000 households are reported to pay less than €5,000 annually).

Who has to pay Wealth Tax or IFI in France?

Wealth Tax in France is payable by individuals who own real estate assets with a combined value of more than €1.3 million. Both French residents with global assets and non-residents who own French real estate may be liable for this Impôt sur la fortune immobilière or IFI.

There are two ways this is calculated:

  • For French residents, this figure is calculated on all global real estate assets. So, if you own property or have real estate assets in the United States, the UK, or any other country, it is the total value of all of these properties plus any French properties you own that is taken into account.
  • If you are non-resident, this figure is calculated based on the total value of your French property and real estate assets only. So, if you own more than €1.3 million in global property assets but just one €500,000 property in France, you will not be liable for French wealth tax.

What properties are exempt from French wealth tax?

The €1.3 million threshold is calculated taking into account all built property (houses, apartments, and outbuildings), historical monuments, property under construction, real estate land, some real estate investments, and immovable rights. However, there are some full or partial exemptions available, including:

  • A 30% allowance on the value of your principal residence
  • Real estate used for your professional activity
  • Woods/forests under professional use
  • Rural property leased long-term or for professional use (such as agricultural land)
  • Furnished rented property under the LMNP regime

The calculation of your taxable property assets and exemptions can be complex, so it’s highly recommended to seek professional advice.

What about if I move to or return to France?

There are some important exceptions to Wealth Tax liabilities for foreign citizens who move to France, as well as French citizens or permanent residents who return to France after having lived overseas for more than five years.

For these individuals, IFI will only be calculated on and applied to property assets located in France for the first five years of their residence or return to France. This means that if you move to France, you do not need to be concerned about paying wealth tax on your global real estate assets for the first five years. After this grace period, all your global property will potentially be subject to the wealth tax.

How much is French Wealth Tax?

Although French Wealth Tax is only payable on real estate assets valued over €1.3 million, the tax-free threshold is actually set at €800,000. This means that once you pass the €1.3 million trigger point, you will be liable to pay taxes on anything over €800,000. In other words, it is only the first €800,000 of the combined value of your property assets that is tax free.

There is an online simulator (Patrim) accessible via your French tax account that can be used to estimate the value of your property(s) – find it here.

French Wealth Tax or IFI is a progressive tax, with rates ranging from 0.5% to 1.5% . You can see the breakdown of Wealth Tax bands below:

Band of valueRate of tax
Up to 800,000 €0%
800,001 € to 1,300,000 €0.5%
1,300,001 € to 2,570,000 €0.7%
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%
Progressive rates of French Wealth Tax

How does marriage and PACS affect Wealth Tax?

Wealth tax is calculated for each fiscal household rather than for each individual (see our guide to Understanding the Fiscal Household in France). Married couples are generally subject to common taxation on the sum of their property regardless of the property ownership (exceptions are made in the instance of separated couples who live separately).

It’s also important to note that cohabiting couples or those in a PACS (civil union) may also be subject to IFI on their combined assets — and your ‘fiscal household’ for IFI purposes may be different to that of your ‘fiscal household’ for income tax purposes. If you have concerns or questions regarding your personal situation, it’s highly recommended to seek professional tax advice.

Paying your French wealth tax

If you own more than €1,300,000 in property assets, you are legally required to make a French Wealth Tax Declaration or Déclaration de l’Impôt sur la Fortune Immobilière. This is made annually at the same time as you file your annual tax declaration and can be made online or via the paper form No. 2042-IFI.

Paying Your Taxes in France

Whether you are moving to France, own French property, or have business interests, assets, or investments in France—FrenchEntrée is here to help with all your tax questions. Our Essential Reading articles will talk you through all the basics, from income tax and social charges to wealth tax and property taxes. However, international tax liabilities can be complicated, so if in doubt, we always advise discussing your personal situation with one of our recommended financial or tax advisors.

Disclaimer: This guide is provided for general information purposes only and is not intended to be a substitute for professional advice regarding any aspect of your tax planning or tax liabilities in France. FrenchEntrée cannot be held responsible for the consequences of decisions or actions you may choose to take in connection with French tax declarations or tax liabilities.

Share to:  Facebook  Twitter   LinkedIn   Email

Previous Article Understanding French Capital Gains Tax: What You Need to Know
Next Article Understanding France’s Pay-As-You-Earn (PAYE) System

Related Articles


Leave a reply

Your email address will not be published. Required fields are marked *