What you need to know about wealth tax (IFI) when filing your 2021 return

In France, there is a wealth tax, hereinafter referred to as IFI, which is paid annually if the value of real estate exceeds €1.3 million. The tax is paid after completing the tax return.

How is taxable property determined?

We talk about net worth because tax laws allow you to deduct certain items from your tax base. These include: debts, taxes. You may also benefit from special treatment for properties used as your main residence (résidence principale).

So, how to calculate the tax base for IFI tax:

Taxable Base = Gross Assets - Primary Residence Tax Credit - Deductible Debts.

To determine your net worth, you first need to know family composition, subject to IFI. Then you need to calculate number of taxable objects, then spend them assessment and finally subtract debts.

How to determine family composition for calculating IFI

Under certain conditions: the composition of the tax household (foye fiscale) for calculating IFI is not the same as in the case of income tax.

When a child turns 18, the property they own no longer needs to be declared along with their parents' assets. He must make a separate IFI declaration if its value exceeds €1.3 million by filling out the declaration form 2042-IFI 2020.

Thus, in the classic case of a couple with children, the family composition for calculating IFI consists of the taxpayer, his spouse and his minor children.

Taxable items in 2020 and IFI benefits

Since most of a taxpayer's or family's real estate is subject to IFI tax, it is more convenient to calculate properties that are exempt from tax or that are not subject to IFI:

• all movable property - furniture, financial savings, shares, works of art, antiques over 100 years old, collectibles,
• real estate for professional use under certain conditions,
• part of the real estate held in euro funds (fonds euro) of life insurance contracts (Assurance Vie),
• Units in OPC (Les Organismes de placements collectifs) - SICAV and FCP, consisting of less than 20% of real estate (if the tax household has less than 10% of fund units),
• holdings of less than 5% in public real estate companies SIIC (public real estate investment company),
• property located abroad for non-resident IFI taxpayers,
• possession of property as a nue-propriété. In the case of a division of property between owners in the status of nue-propriété, who has the right to sell the property, and usufruitier - those who receive the income - in principle, only the latter is liable for the full value of the property for calculating the IFI tax.

However, upon inheritance by a spouse of a portion of the usufruit (not the result of a will or a gift between spouses to the last living donation au dernier vivant) must be claimed at its value as part of the usufruit, rather than at its full value.

Properties Partially Exempt from IFI and Mixed Properties

Some assets are recorded only for part of their value. This is called partial IFI release. Thus, an asset exempted at 75% from tax is included in the taxable base only at 25% of its value.

Property partially exempt from IFI:

• forests,
• parts of forest areas,
• shares in agricultural (GFA) or vineyard land (GFV).

Fully taxable property

Otherwise, it is necessary to take into account all movable and immovable property:

Direct real estate (built or unbuilt)

• main place of residence (house, apartment, etc.),
• second house,
• real estate for rent (apartment in an apartment building or a whole house),
• building under construction,
• monument,
• other buildings of exceptional character (mansion, castle, manor, mill, etc.),
• building land,
• empty land,
• agricultural land (except for rural property for long-term lease),
• wasteland,
• land outside professional assets,
• non-exempt commercial premises (walls
• shops, office premises, hangar, etc.)

Indirectly owned property (built or unbuilt)

• shares and social rights: share in taxable real estate,
• SICAV and FCP: the share of real estate, if it exceeds 20% of the fund's assets,
• participation of at least 5% in the capital of public real estate companies (SIIC),
• SCI, SCPI shares,
• OPCI units.

Real estate rights

• property or rights with usufruit status,
• ownership and real estate rights transferred to the trust.

Regarding unbuilt real estate, the tax authorities indicate to BOFiP (BOI-PAT-IFI-20-20-10 §40) that IFI is assessed on land “of any kind and regardless of its use”, “all land, whether income-generating or not, cultivated or no, cadastral or not, rented or not, granted or not", such as "building land, agriculture, wetlands, pastures, forests and forests, ponds, mines".

For a French tax resident, his worldwide real estate (real estate located in France and assets located abroad) are included in the IFI taxable base. While the property of a non-resident is taxed only in that part that is located in France.

To determine the gross value of assets, you must add the value of all taxable items and the taxable portion of the partially exempt assets as of January 1.

Deductible debts: obligations in the IFI return

According to the IFI, some elements of a tax household may be deductible. Typically, these are debts that must be deducted from gross assets to determine your net taxable asset value.

Real Estate Debts and Other Deductible Expenses

The deduction of some mortgage debts is more obvious. The capital remaining up to 1 January 2020 must be taken into account and interest payable by the taxpayer up to the last date of payment must be added to it.

In the case of a main residence that benefits from a tax benefit of 30%, the debt on the property used to finance it (or the debt incurred as a result of the repurchase of the loan) is deductible only to the extent of the taxable value of the main residence, that is, 70% of its market value. Thus, for an apartment in Paris worth €1 million on 1 January 2020, the corresponding debt is only deductible up to €700,000 (70% from €1 million).

What other expenses can be deducted from the tax base:

• certain taxes for the current year (related to real estate ownership): property tax (with the exception of the tax on the removal of household waste), IFI 2020 itself (the so-called theoretical IFI),
• expenses due to service providers or construction contractors (unpaid invoices as of January 1).

Non-deductible expenses under IFI

However, not all expenses are deductible. Among them:

• loans used to purchase tax-exempt property (such as a piece of art or an antique car)
• debts related to objects not subject to IFI tax (ownership of property in nue-propriété status)
• intra-family loans (taken out together with a tax household member, loans to yourself, including through a company you own). This exclusion of debts recognized as deductions applies, among other things, to debts entered into to purchase securities from real estate companies, particularly SCI (the exclusion became effective January 1, 2019).

Loans received for the acquisition of partially exempt property should be taken into account as a liability only at the rate of the taxable part of the goods (for example, 25% debt for the acquisition of shares in a forestry group, this property is taxed on only a quarter of its value).

Special deduction for loans repaid at maturity and open-ended loans

The legislator wanted to limit the deductibility of certain real estate loans that are classified as taxable assets. We talk about “specially attributable debts.” This restriction applies to loans repayable at the end of the term, as well as to open-ended loans.

In this case, it is necessary to recalculate the debt in the IFI declaration. In fact, in these situations, the loan existing on January 1, 2020 is not fully deductible.

For perpetual loans, the debt is accounted for as a loan repayable over 20 years on a straight-line basis.

Source: https://partenaire.toutsurmesfinances.com/fd6u8m32/ifi-isf-le-patrimoine-net-taxable-cest-quoi-693/

How to calculate tax in 2021

The tax is calculated on a progressive scale, which you will find in the table below.

On the administration website you will find a tax calculator https://www3.impots.gouv.fr/simulateur/ifi/2019/calcul_ifi/

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