Roche & Cie

Real estate wealth tax in France: True or false?

20 Sep 2021

Here’s a quick look at the beliefs and rumors that are often spread about this tax on real estate wealth tax in France. It’s your turn to play !

I bought my apartment in Paris for less than 1.3 million euros, so the real estate wealth tax will never be a problem!

FALSE: The taxable asset is not determined on the acquisition value of the real estate but on its market value. If the Paris real estate market continues to grow and the market value of your apartment exceeds the threshold of 1.3 million euros, you could be liable for this tax.

I have just moved to France, my properties located abroad are not concerned by this tax.

TRUE: taxpayers who have just moved to France benefit from a temporary exemption from real estate wealth tax on their assets located outside France. To benefit from this exemption, you must not have lived in France for the five years prior to your installation.

I have never received a declaration for this tax, so I consider that I am not concerned.

FALSE: the tax on real estate wealth is a declarative tax, which means that you must make the declaration on your own initiative as soon as the net value of your real estate assets exceeds 1.3 million euros. We encourage our clients to regularly check the value of their real estate assets in France and their situation with regard to this tax.

A friend told me that simply holding my property through a SCI would allow me to avoid this tax

FALSE: No, not in any case. If the tax threshold of 1.3 million euros is exceeded, you will have to report the SCI shares on your tax return.

My partner and I have decided not to get married so that the value of our real estate assets does not exceed the tax threshold for the real estate wealth tax?

FALSE: The notion of tax household for the IFI is quite particular since it includes not only married or civil union partners, but also people living together. In other words, unmarried and non-partnered couples may still be liable for wealth tax if the aggregate value of their real estate assets exceeds 1.3 million euros.

I think that holding a property in France through a foreign company would allow me to escape the IFI

FALSE: Don’t think you can hide behind a foreign company or any other legal vehicle (trust) under foreign law! If you exceed the tax threshold, you are still liable for the real estate wealth tax, even if the property in question is held by one or more foreign companies. Moreover, you should know that these companies are also subject to specific reporting obligations aimed at declaring the identity of the individuals at the end of the holding chain. Failure to comply with these obligations will expose the company to the payment of a penalty equal to 3% of the market value of the real estate concerned.

Financing my acquisition with a real estate loan can allow me to avoid the real estate wealth tax.

TRUE: The real estate wealth tax is based on the net value of your real estate assets. A bank loan therefore contributes to lowering the value of your taxable assets, or even to lowering it below the tax threshold. This solution is nevertheless temporary since the level of indebtedness will be reduced from year to year, as the loan is repaid.

A bullet loan (full repayment at the end of the contract) would allow me to get around the problem: if I do not repay the loan, it remains fully deductible

FALSE: Since the reform of the wealth tax in 2018 new anti-abuse mechanisms have been put in place and from now on bullet loans must be amortized fiscally on a straight-line basis over the term of the contract.

Example: I take out a loan of €1,000,000 over a period of 10 years.
The tax-deductible value is reduced each year by 1/10th of its amount
Financing contracts that do not specify a repayment term are amortized on a straight-line basis over a period of 20 years.

Need more information? Are you looking for assistance in preparing your wealth tax return in France? Do not hesitate to contact us!

 How does the IFI work? How to reduce it? What does the French law say?

Find the answers here :

Read more




Sandy Dalmas
Chartered Accountant

Sandy Dalmas has more than 10 years of experience at Roche & Cie.
Specialist in the Taxation of non-residents, furnished rentals and para-hospitality.