Want to know more about the wealth tax on French property?
Here is our simple guide to the tax, and some ways that owners of real estate can manage their liability.
Changes in place since 2018
The first-ever French wealth tax came into force back in 1981, but has changed several times over the years.
From the beginning of 2018, the previous wealth tax known as the Impôt de solidarité sur la fortune (solidarity wealth tax) or ‘ISF’ came to an end.
Its replacement is a newer wealth tax known as the Impôt sur la Fortune Immobilière (real estate wealth tax) or ‘IFI’, brought in by President Macron.
The previous tax considered all assets such as property, investments, and savings. While the newer tax only applies to real estate assets.
First things first – IFI only comes into play if you hold real estate wealth of more than €1.3 million on January 1 of each year.
This total includes the combined property assets held by all members of the tax household. And it applies both to French nationals and foreigners who own property in this country.
However, financial planning can help you to manage the tax, depending on your situation.
Do you need to file a wealth tax return?
The IFI wealth tax covers your real estate assets at the beginning of each year. This includes houses, apartments, and any associated outbuildings such as garages and parking lots.
It can also include property or a share in a property held indirectly through company shares.
If any of these things apply to you, and they total more than €1.3 million, you may be liable to pay the wealth tax.
However, some properties are exempt, for example, those used to run a business for your main occupation.
Managing the wealth tax on French property
There are other important factors to note about the IFI wealth tax.
Firstly, it depends if you own your property outright, or are paying off a mortgage.
If you have a mortgage, the tax is only due on the portion of your property that’s paid off – not on the full purchase price.
This means a mortgage can put owners below the IFI threshold.
There is also an income tax cap, which stipulates that your combined French and foreign taxes must not exceed 75% of your income. If they do, you may not be liable to pay the IFI tax.
Finally, it is also possible to divide your assets among your descendants to reduce your personal property wealth, although this can have implications for gift or inheritance taxes. An experienced accountant or tax advisor can help you to manage your tax liabilities, depending on your situation.
How much is the wealth tax on French property?
IFI is a progressive tax, ranging from 0.5% to 1.5%.
It is also important to note that with IFI, the tax-free threshold is actually set at €800,000.
So once you pass the €1.3 million ‘trigger point’, you only pay tax on your combined property valued over €800,000.
Some people may have concerns – for example those who own property but do not earn a high income. But it is important to remember that the majority of those who pay the tax do not pay extortionate amounts.
Of the 350,000 households that do pay IFI, over 70% of them pay no more than €5,000 annually.
Help for property owners in Paris
We hope you have found this guide to the wealth tax on French property useful.
If you are thinking about buying an apartment in Paris, or are already an owner looking to sell or rent out your property, our experts are on hand to offer free advice. Please don’t hesitate to contact the team at 56Paris today.
And while we cannot give you tailored tax advice, we can put you in touch with a trusted specialist to help you, so feel free to get in touch.
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All information given in this blog is current at the time of writing and is a guide only. At 56Paris, we always recommend consulting a tax professional or an attorney for advice on your own situation.