Real Estate Wealth Tax
The IFI replaced the ISF (Wealth tax). It applies to tax households whose net real estate assets exceed €1.3 million on January 1st of the year.
Summary
Real estate assets include all real estate properties and rights held directly and indirectly, such as:
- Built real estate properties (houses, apartments, outbuildings)
- Real estate properties under construction
- Unbuilt real estate properties (building plots, agricultural land)
- Shares in real estate companies
- Real estate rights (usufruct, right of use or habitation)
The main residence benefits from a 30% allowance on its value.
Exemptions
Certain real estate properties are exempt from IFI, partially or totally:
- Total exemption: concerns real estate used for the professional activity of the declarant, woods and forests under a management commitment or for professional use, rural properties leased long-term or for professional use, and furnished rental housing under the tax regime of professional furnished rental.
- Partial exemption: applies to rural properties leased long-term that do not meet all the conditions for total exemption.
Agricultural properties
Agricultural properties can benefit from a total exemption if used by an active farmer or leased long-term to a family member under certain conditions (minimum lease duration of 18 years, family relationship, use of the properties within the tenant's main profession).
Shares of GFA representing these properties are also exempt by transparency.
A partial exemption (75% or 50%) may apply if the conditions for total exemption are not fully met.
Woods and forests
A 75% allowance applies on the value of woods and forests under a sustainable management commitment for 30 years (Monichon scheme). This allowance also applies to shares of Forestry Groups.
Deductions and Calculation
Certain debts can be deducted from the value of the real estate assets before calculating the IFI, notably:
- Certain taxes (property tax, IFI, donation/inheritance duties)
- Repair, maintenance, and improvement expenses
- Bank loans contracted to finance real estate operations
The IFI is calculated according to a progressive scale ranging from 0% to 1.5%. A discount system applies for taxable net assets between €1,300,000 and €1,400,000.
Verification and Sanctions
It is important to verify the exemption of agricultural properties for the IFI threshold calculation. The tax administration may conduct audits and apply sanctions in case of non-compliance.
Context
Replacing the wealth tax (ISF), the real estate wealth tax (IFI) was created.
Taxpayers whose net value of real estate assets exceeds €1.3 million are subject to IFI. This wealth includes all real estate properties and rights held directly and indirectly on January 1st of the year. Some properties are partially or totally exempt. Certain debts can be deducted from the value of your assets before taxation.
A tax on real estate assets
Calculation of the tax threshold
The IFI declaration takes into account real estate properties held by all persons composing the tax household, filing a joint income tax return.
The following properties are included in the calculation:
- Built real estate properties (for personal use or rented): houses, apartments and their dependencies (garage, parking, cellar...),
- Buildings classified as historical monuments,
- Real estate properties under construction on January 1st of the year,
- Unbuilt real estate properties (building plots, agricultural land...)
- Real estate properties or fractions of real estate represented by shares in real estate companies,
- Real estate rights (usufruct, right of use or habitation...).
Note: for IFI calculation, the main residence benefits from a 30% allowance on its value on January 1st.
Exempt properties
There are partial or total exemptions in the following cases:
- Real estate used for the declarant's professional activity,
- Woods and forests under a management commitment or for professional use,
- Rural properties leased long-term or for professional use (agricultural land, buildings and farming equipment),
- Furnished rental housing under the professional furnished rental tax regime.
Focus on total or partial exemption of agricultural properties
Total exemption
Since the transition from ISF to IFI, farmers are less affected by this tax. Indeed, as long as a farmer is active, their lands and farming buildings are 100% exempt from IFI.
Also totally exempt are rural properties leased by long-term lease to a family member, as they are assimilated to professional properties, provided that:
- The lease duration is at least 18 years,
- The lease is granted by the landowner to their spouse (husband, wife, civil partner or cohabitant), their ascendants or descendants or their siblings, as well as their respective spouses,
- The leased properties are used by the tenant in the exercise of their main profession.
Shares of GFA representing these properties are also exempt by transparency.
Properties leased and made available to an operating company (GAEC, EARL, SCEA…) are also exempt, proportionally to the family ownership of the company shares by transparency.
Partial exemption
Rural properties leased long-term that do not meet all the above conditions may benefit from a partial exemption:
- 75% when the value of the leased properties does not exceed €300,000,
- 50% beyond this limit.
Two additional conditions apply to these exemptions and IFI allowances thanks to long-term leases:
1° the long-term lease must not include an "anti-family" clause, notably the prohibition of lease transfer to a descendant.
2° an inventory must be conducted on the leased properties.
Focus on exemption of woods and forests
Forest investment also allows obtaining a tax exemption on IFI. The allowance is 75% of the forest value during the entire holding period (as in case of donation and inheritance). The individual must commit to applying one of the sustainable management guarantees for thirty years and obtain a certificate from the DDT (valid for 10 years) as proof.
This allowance is also called the Monichon scheme. The allowance also applies to the value of shares in Forestry Groups.
Deductible liabilities
Deduction of debts attached to taxable real estate assets and directly contracted by the taxpayer on January 1st:
- certain taxes: property tax, IFI, donation/inheritance duties related to the property,
- repair, maintenance and improvement expenses,
- bank loans contracted to finance operations, acquisition, repairs, construction, extension, acquisition of shares proportional to real estate assets.
Compliance
| Total exemption | ||
|---|---|---|
| Rural properties
GFA shares |
Total exemption as professional properties | article 975 CGI
|
| Rural properties leased by long-term lease or transferable lease
Non-farming GFA shares leased by long-term lease or transferable lease |
Total exemption as professional properties in favor of a “family” tenant | art 976, III para. 1 and IV para.1 CGI |
| Partial exemption | ||
| Rural properties leased by long-term lease or transferable lease
Non-farming GFA shares leased by long-term lease or transferable lease |
Partial exemption up to 75% of their value within the limit of €300,000, and 50% beyond. | art 976, III para. 2 and IV para.2 CGI |
| Woods and Forests
Shares of Forestry Groups |
Partial exemption up to 75% of their value, | art 976 I and II CGI
art 973 2.2° and 1.3° CGI |
Applicable scale
The IFI is calculated according to the following progressive scale:
Rate for taxable net assets:
- between €0 and €800,000: 0%
- between €800,000 and €1,300,000: 0.5%
- between €1,300,000 and €2,570,000: 0.7%
- between €2,570,000 and €5,000,000: 1%
- between €5,000,000 and €10,000,000: 1.25%
- above €10,000,000: 1.5%
Only for taxable net assets between €1,300,000 and €1,400,000, a discount system reduces the tax. The discount amount equals 17,500 – (1.25 x taxable net asset amount).
In case of non-compliance
Tax administration recovery periods:
- 3 years => Under-valuation
- 6 years => Absence of declaration
- 10 years => If the omission concerns assets held abroad
References
La version initiale de cet article a été rédigée par Aurélie Brunet.
Articles 964 and following of the General Tax Code
