Real estate wealth tax

REAL ESTATE WEALTH TAX (IFI)
The Real Estate Wealth Tax (IFI) applies to non-resident French tax residents who hold real estate assets in France.
It also applies to new French tax residents who have not been tax residents in France during the five years preceding their arrival.
It further applies to French tax residents after six years of residence who own real estate assets in France, as well as those holding real estate assets abroad.

WHO IS LIABLE FOR THIS TAX?
The Real Estate Wealth Tax applies only when the net value of your real estate assets exceeds €1.3 million as of 1 January of a given year.

TAXABLE ASSETS
The assets subject to this tax include real estate properties and real estate rights. Certain allowances apply depending on the situation:

• If the property is your main residence, a 30% allowance applies to its market value (only for French tax residents).
• If you hold ownership rights, a 10% allowance may apply to the value of those rights.
• If the property is rented, an allowance may apply under certain conditions.

DEDUCTIBLE LIABILITIES
Only certain debts are deductible.

General rule : Debts existing as of 1 January of the tax year and directly related to the acquisition, repair, maintenance, construction, reconstruction, or extension of the property are deductible. Only debts linked to taxable assets are eligible.

Debt cap : When the value of real estate assets exceeds €5 million and the total deductible liabilities exceed 60% of this value, the deductible amount is reduced to 50% of the excess.

Restrictions on loans and bank debts

• Exclusion of certain taxes not directly related to the property (e.g. occupancy taxes)
• Exclusion of personal consumer loans
• Restrictions on in fine or bullet loans, where capital is repaid at maturity. These become partially deductible, with the debt reduced proportionally over the duration of the loan, resulting in a gradual amortisation of deductible debt.

Example:
For a property valued at €8 million with outstanding debt of €6.5 million, the deductible liability would be €5.65 million instead of €6.5 million under current rules (calculation: €4.8M (60% × €8M) + €850K [(€6.5M – €4.8M) / 2]).

WARNING
Professional furnished rental activity: under certain conditions, it may be possible to fall outside the scope of the IFI.