IFI - decoding of real estate tax in France

In 2018, Emmanuel Macron became president of France and carried out the promised tax reforms. The changes affected the owners of luxury real estate.  The main goal: to return tax emigrants departing from the ISF (wealth tax) and attract investors to develop and maintain local businesses.

The ISF tax (Impôt de Solidarité sur la Fortune) is annually levied on individuals who owned property worth € 1.3 million or more.  It had been existing since 1989 almost unchanged. In 2018, it was replaced by IFI (l’Impôt sur la fortune immobilière).

IFI Essence

Taxation of real estate with a total worth of 1.3 million euros or more.  Unlike ISF, only private property falls into the tax field.  Commercial and entrepreneurial property does not belong to this category.  Also, the list of the tax does not include other capital of a private person: cars, stocks, securities, general financial fortune, movable property.  However, the total worth of non-commercial real estate is taken into account.

The tax rate is 0.5% -1.5%.

 IFI concerned

• French citizens (individuals, families, property owners abroad);
• Residents of other countries working and residing in France.

IFI applies only to natural persons, what is more, both an individual and a whole family.  For example, if the husband owns a number of non-commercial apartments and the wife has a house, the total worth will be added to calculate the tax.  And if it is equal to and more than a minimum of 1.3 million euros, then you have to pay the tax rate annually.

The general tax calculation applies to:

• married couples in an official marriage;
• married couples in a civil marriage;
• The ownership of minor children is also recorded in the total family capital (adult children do not participate in the IFI tax assessment together with their parents).

It is possible to declare IFI taxation separately for spouses.  To do this, you must fulfill a number of terms:

• when marrying, both spouses must be agree and sign a document on the division of property;
• husband and wife must live separately from each other, have different addresses of residence.

It should also be borne in mind that the desire to get a divorce does not exempt from tax.  As well as contractual long-term relations (civil marriage).

As for foreign citizens, the luxury tax is levied on them only if they own real estate in France in the amount of 1.3 million euros.  When calculating IFI, housing outside the borders of France will not be taken into account.

What about landlords

The tax does not apply to French citizens whose main income is renting out their own real estate.  But here there are terms:

• you must be an official registered landlord (obtain an LMP certificate);
• the total income when renting a property does not exceed 23 thousand euros per year;
• the main income is obtained from the lease exactly (taking into account all commercial activities).

What property is taken into account when calculating the tax rate

As it was mentioned previously, all non-commercial property is taxable:

• residential square meters (apartment, house, country cottage, storage room, garage, courtyard, private non-commercial land, even if no one lives on it);
• real estate that falls under the classification of historical assets;
• real estate under construction process;
• non-commercial agricultural land.

However, there is a slight indulgence: if the property is located in a zone of green territory (forest, park, plantations), the rate for the amount of tax on the land is reduced by 75%.

How the IFI tax rate is calculated

On January 1 of the current year, all real estate assets of an individual and the whole family are evaluated.  The real estate price is taken at the market and each individual type of property is evaluated.  There are a number of rules:

• for the main accommodation of the family / person, a discount of 30% of the tax rate is provided;
• leased property can also be considered with a discount if it is furnished;
• real estate under construction process is evaluated by its current state as of January 1.

To find out the market value of your property, look at the prices for similar houses for sale or previously sold.

The standard practice is to hire a specialist who will calculate the total cost and help to fill in the necessary documents correctly .  The price of such services will cost 500 euros or more.

You can read more about taxes in France in our article: “Property taxes in France”.