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Tax savings for the French property owner brought about by new French Wealth Tax Rules from January 18

Wednesday, 2 May, 2018
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The French property Owner and the application of the new French Wealthtax rules from January 2018 - The replacement of the old French Wealth Tax known as  ISF (Impot de Solidarite Sur Le Fortune ) with IFI (Impot Sur La Fortune Immobiliere).  (Reference MF18 71000-72885).
 
With effect from 01/01/2018 there have been wholesale changes to French Wealthtax legislation which, in almost all instances, will result in a lower charge to tax and will take many French resident taxpayers below the tax payment threshold.

These changes, introduced by the French Finance Act 2018 (1), form part of a wholesale reform of French personal tax legislation instigated by Emmanuel Macron.

This article summarises the main changes to Wealthtax introduced by IFI and should be used as a first point of reference on the subject.  Our service will include cross-referencing the EFL memento fiscal sources referred to for each subject on your behalf and, when relevant, where there is a lack of clarity delve further into the legislation.


Scope of IFI

 
Previously, subject to a few exceptions, ISF applied to land, buildings, chattels and financial assets. For the French resident, it applied to such assets worldwide once the taxpayer had been resident in France for 5 years. For the non-resident it was assessed solely on French located assets.
 
IFI on the other hand, broadly speaking, only considers land and buildings – whether owned directly or via a company. Chattels and financial assets are now excluded.For details of assets which are exempt please contact the tax dept - Alex@charleshamer.co.uk
 
For the French resident it is assessed on worldwide land and buildings and any share value held in a property investment company. For new arrivals, usually the assessment on worldwide assets will only arise once the taxpayer has been resident in France for 5 full French tax years (2.)
 
For the non- resident and individuals who has been resident in France for less than 5 years, it is assessed solely on such assets as are located in France and its overseas territories, (the DOM-TOMs). (3)
 

How is it payable? 


It is  assessed and declared at the time of submiitting the  main income tax return. It is then payable via tax office assessment – being included in the avis d’impot of the year of declaration.
 
Non- French resident taxpayers, who are also not EEA resident, may be required, at  the request of the Fench tax office  to appoint a fiscal representative to receive tax office correspondence regarding IFI. When this arises, failure to appoint such a representative within 90 days will give rise to « taxation d’office ». The implication of this is that the taxpayer will then need to appeal the tax office estimate – so passing the burden of proof regarding valuations – onto the taxpayer (4).
 

Who is taxable? 

 
Tax is assessable only on individuals.  Tax is due whenever the combined net value of the relevant land and buildings attributable to the taxable household exceeds €1.3 million. For tax rates and calculations please contact our office .
 
Broadly speaking the number of times that this €1.3 million threshold is applied corresponds to the income tax status of the household:

It is applied only once per married or civil partnership couple, or established co-habiting couples, unless they are living separately and assessed to income tax taxed independently in France.
The threshold applies per individual if they are neither married nor in a civil partnership or are married or in civil partnership but living separately and assessed to income tax in France independently.
Taxable assets belonging to children are included in the assets of the household, (shared equally in the case of divorced parents or parents living separately and taxed independently).
Taxable assets belonging to children are included in the assets of the household, (shared equally in
the case of divorced parents or parents living separately and taxed independently).
 
 

Taxable Assets  (MF18 71140 – 71300)

Subject to certain specific exemptions, taxable assets comprise:-

Direct interests in land and buildings (5) 
Indirect interests in land and buildings held via a company or Trust (6)

As held on the 1st January of the year of assessment and for their value at that same date.

 

Business assets

 
Land and buildings used by the taxpayer in the course of their principal professional activity or by a
trading company, in which the taxpayer pursues their principal professional activity for its own trading activities , are excluded  (7)   Equally , assets used by group subsidiary for group trading activities are also excluded  but assets used by a third party company which is not a subsidiary are included (8)
 

When the Trust or company assets comprise a mix of land, buildings and other assets, the
assessment still needs to take into account the underlying value of any land and/or buildings held –
whether directly or indirectly - on the balance sheet – and which are not used for the principal
professional activity of the taxpayer. ( 9) 
 
This requirement can make the assessment complicated, particularly if the company owns shares in
one or more other companies which themselves have property assets, since the assessment can
need to take into account the balance sheets of those other companies.
 
Furnished French rental  property is treated as professional if the annual turnover exceeds a certain sum   and represents a certain percentage of household  professional income
 

De Minimus Limit

 
In principle at least, there is no minimum limit below which the land / buildings assets of the
company are ignored, wih the exception of shareholdings in trading companies ,when these fall below a certain threshold .
 

Notes to the above

 
1  Article 31 de la loi 2017-1837 du 30 décembre 2017
2  MF18 71100-71115. Technically, the limitation to French located assets is dependent on either the taxpayer having previously been UK tax resident prior to the move to France or a beneficiary of a similar double tax treaty arrangement or having been non French resident for at least the previous 5 consecutive years. This partial exemption then lasts until the 31/12 of the 5th year following the year of arrival.
3  MF18 71105
4  This issue may become relevant to our Uk based clients after withdrawal if the UK does not remain within the EEA
5  MF18 71150
6   Except charitable trusts or pension trusts
7 See MF72500s for full details on excluded professional assets.
8  MF18 71180. In effect the aim is to limit IFI to investment property. See in particular the example used to demonstrate
9  MF18 71160
 
 
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