One of President Emmanuel Macron's promises regarding taxation in France was to replace the current wealth tax with a new tax that would only apply to real estate. The French wealth tax, or Imp?t sur la fortune immobiliÃ¨re (IFI) as it is otherwise known, is payable by resident households whose assets exceed â‚¬1.3 million. The tax is payable by both French nationals and expat residents living in France.
As envisaged by Emmanuel Macron, the new capital property tax (IFI) removes any financial investments, savings, luxury movables (cars, yachts, horses...), and other assets from the taxable assets of the ISF to retain only real estate.
The ISF covers all movable and immovable assets, rights (usufruct, right of use ...), and securities (share, title, etc.) that make up your assets as of 1 January 2017. However, some debts can be deducted from the value of your assets before taxation.
The new wealth tax replaced the old ISF in 2018. The Minister of the economy stated, "[t]he IFI will concern property assets net of real estate loans of more than 1.3 million euros.â€ Nothing changes on the entry threshold, rates, and discounts, such as that of 30% on the primary residence. Similarly, the real estate used for the taxpayer's business will not be affected, and the sum of the IFI and the income tax cannot exceed 75% of the income.
The main debate around a change in wealth tax was based on determining the status of shares of French civil companies. A French civil company is a structure often used for estate planning purposes. Parents usually transfer their real estate into a company where the children are also shareholders to anticipate the transfer of assets to the next generation and benefit from tax advantages.
However, the new IFI has not yet identified the status of shares and whether they will be considered movable. Therefore, they have been excluded from the tax and may still be recognised as a substitute for taxable property for wealth tax purposes. Currently, French shares of French civil companies are taxed under the wealth tax regime and under the name of their non-French residents' shareholders, provided that properties exceed 50% of the company's total assets.
For instance, a French civil company owning real estate worth â‚¬500,000 and bonds up to â‚¬1 million would not be subject to wealth tax. A wealth tax will apply if the French company only owns real estate whose value exceeds â‚¬1.3 million.
We do not yet know the rules to determine how the capital share will be represented and how it will apply to the new IFI. However, there is no doubt that the government will consider French civil companies when drafting the final version of the legislation.
The members of the French Parliament have criticised the French government for excluding luxury goods from the IFI. They must now find an alternative tax solution to tax for these goods to appease those who are contesting the new legislation.
If you require further information about the Imp?t sur la fortune immobiliÃ¨re and how it may affect your French business and property, you can contact one of our expert team today. They are highly experienced in multiple areas of French law. They can advise you on English and French Wills, Do You Need Both? n how the new legislation may affect your assets.