How to reduce french real estate wealth tax?
Real estate wealth tax is due by individuals on their real estate assets, if the net value of the real estate assets exceeds €1,300,000. It is assessed at the level of the tax household on January 1st of the tax year and is payable annually through a separate declaration. Individuals domiciled outside of France are only taxable on properties located in France. In a growing real estate market, it may be beneficial to explore solutions to limit the taxable base of this tax or to obtain a tax reduction.
Nevertheless, we are aware that this tax can be financially burdensome, which is why we aim to provide you with possible solutions to reduce its cost.
Reduce your french wealth tax : Donation in full ownership
One of the most effective solutions to reduce your real estate wealth tax is to reduce the taxable base, by transferring your real estate assets to your children, grandchildren, or a third party. This would lower the total value of your assets.
In addition, the transmission of real estate to children and grandchildren allows you to benefit from a rather substantial allowance, based on the degree of kinship. For example, donations to children give an allowance of €100,000 per parent, per child, every 15 years on the value of the transferred property. As for donations to grandchildren, they offer an exemption of 31 865€, under the same conditions as those established for children.
Reduce your french wealth tax : Ownership dismemberment
In France, it’s possible to divide the full ownership of a property into two parts: usufruct and bare ownership. On one hand, the bare owner has the right to dispose of the property, while on the other hand, the usufructuary has the right to use the property and receive its income. In the event of dismemberment, it is the usufructuary who must declare these assets at their full ownership value.
Temporary usufruct donation
If you do not wish to permanently part with your assets, you can opt for the temporary donation of usufruct to reduce the taxable base of your real estate wealth tax.
The duration of the donation is determined in advance, for a limited period. The beneficiary of this donation will receive the income from the property and will be liable for the tax based on the full ownership value. This will allow you to remove an element from your assets, and thus reduce the taxable base of your wealth tax.
Temporary usufruct donations can also be made to a legal entities, such as associations or foundations.
Investment in bare ownership
Finally, bare ownership can be a good alternative if you are not a property owner and want to acquire a property without increasing your taxes. Bare ownership grants you the right to dispose of the property while respecting the rights of the usufructuary. As explained above, the tax liability falls on the usufructuary. This type of investment allows you to invest without increasing your real estate wealth tax.
How can we help you ?
The missions we can offer you:
Drafting of a tax study: with simulation of your tax obligations in France ; a key solution to secure your installation in France in order to avoid unfortunate situations, such as delays or errors in your tax returns.
Follow-up of your tax returns in France: income tax, real estate wealth tax, rental income
Reduce your french wealth tax: Real estate loan
For the acquisition of future real estate assets or renovation works, you can consider financing through a bank loan.
However, the debt must meet 3 conditions to be effectively deductible from your wealth tax. Firstly, the debt must exist and be certain as of January 1st of the tax year. Secondly, it must be borne by a member of the household subject to real estate wealth tax. Lastly, it must concern taxable assets.
The outstanding loan amount is fully deductible from your tax, thereby reducing its impact.
Reduce your french wealth tax : Donations to certain public interest organizations
This solution allows you to combine generosity with tax optimization. Indeed, donations to certain organizations are deductible from your tax liability, a limited list can be consulted here.
In this case, 75% of the donation amount is deductible from your tax. This tax reduction is capped at €50,000 per year and per tax household. Since 2019, they are also exempt from transfer taxes.
Donations must be made by June 15 of the relevant year (date of declaration and payment of the wealth tax).
You now have some keys information to help you reduce your real estate wealth tax. Our team of professionals remains at your disposal for more personalized assistance concerning the optimization of your tax charges.
The Team Roche & Cie
Professionals or individuals, French or international, since 1948, Roche & Cie has been assisting clients from all horizons.
+33 (0) 4 78 27 43 06