2024-04-26 04:00:00
The Real Estate Wealth Tax (IFI) is a French tax that appeared in 2018. It applies to owners whose net real estate assets exceed a certain threshold. This tax replaced the old Solidarity Wealth tax (ISF).
Why introduce a real estate wealth tax?
Initiated under the auspices of Emmanuel Macron, the IFI replaces the former ISF, reformulating the tax rules for the success of real estate.
The Real Estate Wealth Tax has been implemented by the French government with the aim of taxing the wealthiest French. This objective has two objectives: to ensure new income for the State and to reduce social inequalities.
In 2019, the IFI generated 2.1 billion euros thanks to 139,149 taxpayers, a figure that rises to 164,000 in 2022 without increasing income.
A senator’s report from October 2019 criticizes the economic consequences of ending the ISF in favor of the IFI, analyzing the The Court of Auditors in January 2024 tempers these assertions.
Who is subject to the IFI?
From January 1, 2018, the Real Estate Wealth Tax (IFI) focuses on private real estate assets over 1.3 million euros, affecting individuals and couples without the need for professional activity.
Based on a progressive scale, the IFI starts on tax values above 800,000 euros, increasing from 0.5% to 1.5%.
Non-residents with real estate assets located in France will also be affected by this tax if they cross those thresholds.
How is the IFI calculated?
The assets of the IFI are calculated at the level of the tax family, independently of the marriage system, thus including all the assets of the family members. This includes the property of each partner in a couple, without distinguishing ownership.
By law, unmarried couples, whether same-sex or not, and civil partnerships are considered equal to married couples when calculating their assets.
There is an exception for couples who are separating property, in separation or divorce proceedings, and who are not cohabiting: they are subject to separate taxation.
What is the real estate wealth tax scale?
The scale of the IFI is progressive. It has several tranches from 0.50% to 1.50%. The higher the value of the real estate assets, the more the tax rate increases.
The French taxpayer must pay this tax according to the following thresholds:
| net worth bracket (€) | Tax rate |
|---|---|
*Owners with net assets between 1.3 and 1.4 million euros are entitled to a discount on their IFI. This reduction is found with the formula: €17,500 – 1.25% of the net taxable value of the assets in order to limit the threshold effect.
The combination of IFI and income tax cannot exceed 75% of the taxpayer’s income, thereby respecting the tax ceiling.
What types of property are taxable?
All real estate comes under the umbrella of Real Estate Wealth Tax, including shares in SCPI, OPCI, and SCI. The share of real estate assets in unit-linked life insurance and holdings of more than 5% in non-professional companies that own real estate are also taken into account.
Property dedicated to professional activity and shares of listed real estate companies are, however, exempt.
Taxpayers’ main residence benefits from a 30% reduction, unless they are held through a company.
Tips to optimize your IFI
There are various legal solutions to reduce the tax burden associated with the IFI while at the same time supporting a cause close to your heart. One of the solutions to reduce your IFI is to donate to an association or foundation that is recognized as useful to the community.
Make an IFI donation to the Fondation de France
By making a donation to the Fondation de France you are not only allowed to benefit from a 75% tax reduction of the amount paid, but also to support the activities of the Fondation de France in the service of collective well-being and to contribute to innovation. projects in the fields of health, education, culture and the environment.
Please note that the maximum reduction granted is 50,000 euros per year.
To optimize your IFI in this way, we recommend checking out the timetable for declaring and exempting your Fondation de France IFI from tax to inform about important dates related to this tax.
Dismember your property
Another solution to optimize your IFI is to divide your property into two separate rights: bare ownership and usufruct.
When a property is dissolved, only the usufructuary is liable for the IFI, which allows the bare owner to completely or partially escape the tax field.
This approach requires special attention because it changes the distribution of property rights, and its consequences must be carefully analyzed.
Invest in unlisted companies
Investments in certain unlisted companies can also be an interesting strategy to reduce your IFI. Shares or shares held directly in such companies are exempt from IFI under certain conditions, especially if they qualify as professional property.
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