In 2017 (for 2018 budget), the wealth tax as we know it has been repealed and replaced by a tax on real estate. Paradoxically, it is good news for the foreigh buyers of French luxury properties.
From January 2018, real estate will be subject to the new tax called real estate wealth tax (“IFI” for : impôt sur la fortune immobilière). If you are not fiscally resident in France, this tax will be based on all the properties your household owns in France – not worldwide.
If your total property is valued at less than €1,300,000 you are exempt. But if your property portfolio is over this limit, you will pay wealth tax at rates of 0.5% to 1.5%, though the first 800,000€ is exempt.
Aside from various complex exemptions and caps, the tax is currently applied to property and financial assets worldwide. (It is said to have prompted the exodus of 60,000 millionaires from France since 2000).
The good news is that from 2018, securities like stocks and shares, including those held in assurance-vie policies, are no longer liable for impôt de solidarité sur la fortune (ISF) – the current wealth tax. So whether your investment portfolio is 100,000€, 1m€ or 10m€, it will no longer be liable for any form of wealth tax.
Jean-Pierre Lieb, a French tax policy expert at global accounting group EY, said: “The outcome for British expats is a clear reduction of the tax burden if they have non-property assets. Nevertheless, if the value of their real estate assets and rights held in France or abroad exceeds 1.3m euros they will have to pay the new tax.
Capital gains tax
It is good to know at the time of purchase that when you come to sell your property, the capital gain is taxed at the current flat rate of 19% (with a linear reduction of 6% from year 6), and on social levies current rate of 15.5% (with a taper relief from the 6th year). For profit exceeding € 50,000, an additional fee of 2 to 6% (depending on the amount of profit after application of a deduction) applies. The amount of tax will be deducted by the notaire at the time of the signing of the deed, and paid to the French Treasury.
The “capital gain” is equal to the difference between the sale price (net of selling costs including VAT) and 92.5% the purchase price (the 7.5% difference to account for the stamp duty and other purchase fees).
The purchase price may be increased to account for the cost of construction expenditures, reconstruction, expansion or improvement provided such work creates inhabitable areas, and for which invoices showing VAT at 20% can be provided to the tax authorities upon their request. Meaning that materials bought, and work done, by the owner itself are not deductible. In all cases, the expenses of maintenance and repair, including major repairs, are not deductible. They include those which correspond to work intended to maintain or restore a building in good condition and to allow normal use.
Alternatively, provided the property has been owned by the seller for over 5 years, the purchase price may be increased by 15% the acquisition value without having to establish the reality of the work.