Ah, France! The land of fine culture, breathtaking landscapes, exquisite cuisine, and a deep appreciation for the finer things in life. If you’re fortunate enough to own property in the slice of heaven that is France, congratulations! Of course, like anything worth having, owning a great property in France comes at a cost, so if you find yourself in this fortunate position, that also means considering Impôt sur la Fortune Immobilière (IFI), the French property wealth tax. Robert Kent of Kentingtons, professional tax and financial advisors in France explains what property wealth tax is and how it affects expats in France.
What is Property Wealth Tax or IFI?
IFI is payable annually by any household owning taxable property assets worth over a specific value on 1st January. Specifically, for IFI, the term “household” means everyone living together, including unmarried couples and children. No property wealth tax is payable on assessable assets up to a threshold of €1,300,000.
Where assessable assets exceed €1,300,000, they are taxed from €800,000, detailed as follows:
| Assessable net asset values | Percentage applicable |
| Below € 800,000 | 0.00% |
| Between €800,000 – €1,300,000 | 0.50% |
| Between €1,300,000 – €2,570,000 | 0.70% |
| Between €2,570,000 – 5,000,000 | 1.00% |
| Between €5,000,000- €10,000,000 | 1.25% |
| Above €10,000,000 | 1.50% |
This tax is assessed using the total sale value of all assets, although a 30% allowance is given against the value of your principal residence.
You may also deduct your local taxes, and any loans used to purchase, improve, enlarge, or reconstruct the property.
Other ways exist to mitigate, reduce, or even avoid this tax. It needs to be very clear that there is tax evasion, which is illegal and might result in you living somewhere far less glamorous (like a French jail cell) or at least being heavily fined and blacklisted by the French tax office for eternity. Then there is avoidance, which is perfectly legal and part of sound financial planning.
Innovative Strategies to Consider Reducing IFI Liability
Debt Structuring
If a mortgage or loan is secured against your property, you can deduct it from the taxable value.
Assurance Vie
France’s beloved assurance vie is not taxed under IFI unless invested in real estate, in which case, that part may be subject to IFI. Moreover, withdrawals can be taken as loans rather than income, reducing taxable income and helping with plafonnement to ensure total tax liability does not exceed 75% of income, thus significantly reducing or even eliminating the tax altogether.
Company-Owned Property
Depending on its structure, a company holding your real estate (rather than you personally) may not be subject to IFI. Simply setting up a company that does nothing but own your home will not work! It must be deemed as a real business.
Charitable Giving
Certain types of charity donations can reduce IFI liability. Nothing says generosity like lowering your tax bill!
Gifting to Children
France allows tax-free gifts up to certain thresholds every 15 years per parent and per child. This can lower the value of your real estate holdings below the IFI threshold while ensuring your loved ones benefit from their inheritance early. Of course, there is no sense in doing this if it jeopardises your financial security, so this requires some thoughtful financial planning.
Selling Excess Properties:
This may sound extremely obvious; however, selling one or some can reduce your tax burden if you own multiple properties that push you over the IFI threshold. This lowers taxable wealth and frees up funds for investments outside IFI, such as financial assets or a properly structured assurance vie.
IFI Reduction Strategies to Avoid
Trusts
While trusts may be helpful to estate planning tools in some jurisdictions, they do not work to avoid tax in France, and IFI is no exception. The French tax authorities consider many foreign trusts transparent, meaning they will look straight through them. Additionally, trusts can trigger unwanted reporting obligations and even punitive taxation (up to 60%) under French tax law, making them a risky and often ineffective strategy for wealth management in France.
Undervaluing Assets
Some may be tempted to declare a lower value for their property to reduce IFI liability, but this comes with significant risks. The French tax authorities conduct regular audits and cross-reference property sales and market data. They can impose fines, penalties, and back taxes if they determine that an asset has been undervalued. Moreover, any future property sale at its actual market value could expose the owner to unexpected capital gains and tax liabilities. Proper valuation and compliance with French tax laws are always the safest approach.
French IFI Declaration
If you’re subject to IFI, you must declare it when filing your annual tax return. Non-residents usually need to do this separately.
Is Wealth Tax here to stay?
Macron’s decision to replace ISF with IFI was met with mixed reactions. Some argue that it makes France more attractive to investors, while others claim it benefits the ultra-wealthy at the expense of social programs.
Before 2018, when wealth tax was applied to all assets, it raised between 0.5% and a maximum of 1% of France’s total tax revenues. It was considered that keeping wealthy people away from the country came at a much higher cost! At its peak, Wealth Tax raised €5 billion. In the years following wealth tax becoming IFI, thus only applied to property, income taxes collected increased by over €20 billion as the wealthy moved or returned to France. Therefore, the country’s total tax revenue significantly increased, demonstrating that Wealth Tax is more political than economic.
Will the tax landscape change again? If history is any indicator, yes. France has a habit of tweaking its tax system every few years, especially as government changes mean moving between left and right, so a revision to wealth tax is inevitable at some point.
Final Thoughts
Even if you buy a primary residence in France, gaining the 30% allowance, with zero planning, you can spend up to €1,857,142 and not pay a single cent in French Property Wealth Tax. If you consider this “slumming it”, it is time to accept extra taxation or get professional advice!
If you would like professional, qualified help and advice you can trust for reviewing your finances and investments, get in touch with Kentingtons at: kentingtons.com
