The previous French wealth tax, which had to be paid by individuals who owned assets of over 1.3 million EUR, and which consequently lead to the migration of wealthy owners, has been limited from the 1st January of 2018 to private immovable property.
The new wealth tax (“impôt sur la fortune immobilière”, “IFI”) takes over many provisions of the old one, for example regarding the threshold (1.3 million EUR), the taxation rates (maximum tax rate of 1.5 %) and some global evaluation criteria.
The taxation rules of directly and indirectly owned real estate are stricter than before. As long as the real estate is not used by a company for its own activity (other than leasing), it is in the scope of the IFI.
Through this, the entire non-operational immovable property held by French tax resident individuals and non-French tax residents should be subject to the wealth tax. Other financial assets, such as cash, movable goods, bonds, and participations are excluded.
There will be an extension of their taxable base for the non-resident taxpayers who were subject to the former wealth tax because of their immovable French property and shares in a real estate company.
The provisions regarding the deduction of loans and liabilities linked to the wealth tax have changed. For example, loans granted by family members and by companies linked to the company can’t be taken into account anymore (some very specific exceptions apply).
The deduction of shareholder loans remains prohibited. If the value of the taxable asset exceeds 5 million EUR and if the loan represents more than 60 % of the taxable asset, the deduction will be limited.
It remains to be seen in practice, how the new rules should be applied. We would be happy to advise and help you in this matter.
Nikolaj Milbradt
Tax Partner
