Created in 1982, the ISF has undergone several revisions over the years. The Wealth Tax on Real Estate (IFI), which came into effect on January 1, 2018, is a new version of the Wealth Solidarity Tax (ISF) and now applies only to real estate assets. Here’s a summary in 7 points.
From ISF to IFI: Everything You Need to Know About the New Rules
Who is affected by the IFI?
When discussing the IFI, we consider the "tax household" because even assets owned by minor children under the legal administration of their parents are included.
The following are subject to the IFI:
- Individuals whose tax residence is in France. They are taxed on all real estate assets and rights, shares, or stocks in real estate companies held in France and abroad.
- Individuals whose tax residence is abroad. They will be taxed on:
- Real estate assets and rights located in France and owned by the members of the household.
- Shares or stocks the household holds in real estate companies owning property in France.
- Shares or stocks the household holds in real estate companies owning property in both France and abroad, limited to the assets and rights held in France.
- Expats who have lived abroad for at least five calendar years (real estate assets and rights located in France).
You are subject to the IFI if your real estate assets (net assets after deducting any loans) amount to €1.3 million or more, regardless of the number of people in the household.
The IFI tax base
While the ISF included other assets (savings, financial investments, luxury yachts, etc.), the IFI tax base is limited to non-professional real estate, which includes:
- Undeveloped properties (building plots, agricultural land).
- Developed properties (main residences, houses, apartments, and their annexes such as garages, parking spaces, cellars...).
- Real estate or portions of real estate represented by shares in real estate companies.
- Shares in real estate investment trusts (SCPI) and real estate collective investment undertakings (OPCI).
For example, a young single person who owns a Paris loft valued at €700,000 and has inherited a house in the countryside worth €800,000 would be subject to the IFI.
Declaration process
Taxpayers must estimate their assets as of January 1 of the year of declaration. If your real estate assets exceed the IFI threshold of €1.3 million, you must declare it along with your income using form Cerfa No. 2042-IFI. For those without an income declaration (non-residents, attached adults, etc.), use form Cerfa No. 2042-IFI-NOT.
For taxable assets between €1,300,000 and €2,570,000, attach form Cerfa No. 2042 C to your income tax return. If your assets exceed €2,570,000 or if you are a non-resident without French-source income and your taxable assets exceed €1,300,000, use form No. 2725.
What about the real estate of children?
Assets owned by minor children must be included in the parents' real estate assets. If both parents file separate IFI declarations, these assets can be divided between them. Assets owned by adult children are not included in the parents' IFI calculation, even if they are part of the household. If an adult child’s personal taxable assets exceed €1,300,000, they must file an IFI declaration in their own name.
IFI calculation method
Like income tax, the IFI is progressive: the larger your estate, the higher your IFI. The IFI tax scale is identical to that of the ISF.
Here’s a summary of the IFI scale:
Fraction of taxable net estate value | Applicable rate |
|---|---|
Up to €800,000 | 0% |
Between €800,001 and €1,300,000 | 0.5% |
Between €1,300,001 and €2,570,000 | 0.7% |
Between €2,570,001 and €5,000,000 | 1% |
Between €5,000,001 and €10,000,000 | 1.25% |
Over €10,000,000 | 1.5% |
Important: Taxpayers subject to the IFI are those with a taxable net estate of at least €1,300,000. However, once you are taxable, the calculation starts from €800,000.
Reductions and exemptions
As with the ISF, the value of the primary residence is reduced by a 30% allowance. Other ways to reduce your IFI or even benefit from an exemption include:
- Donations to charitable organizations: property donations to descendants, donations to associations, foundations, research institutions, or higher education institutions. The IFI reduction is 75% of the donated amount, up to €50,000.
- Selling real estate to bring your estate below €1,300,000.
- Real estate used for the primary professional activity is not subject to the IFI (sole proprietorship or company).
- Renting furnished properties: exemption applies to taxpayers generating more than €23,000 in turnover and earning more than 50% of household income from renting furnished properties.
- Investment in unlisted SMEs.
- Woods and forests: 75% exemption on their value (subject to conditions).
IFI and discount: If your assets are between €1,300,000 and €1,400,000, you benefit from a discount that is applied to your IFI. To calculate the discount, use this formula: €17,500 - 1.25% of the taxable net estate value.
Deductible debt
Debt can be deductible from the IFI in the following cases:
- It is real estate debt.
- It exists as of January 1 of the tax year.
- It is contracted and owed by the person subject to the IFI.
- It was contracted to acquire real estate assets or rights (loans), to finance repairs, extensions, maintenance, etc.
Did you know? The amount of your property tax is also deductible from your IFI. Only property-related taxes are deductible; taxes that apply to individuals, such as housing tax, are not.
In the case of divided ownership
The usufructuary must declare the assets and rights subject to usufruct for their full ownership value (donation of the bare ownership), except in cases where usufruct and bare ownership are taxed separately, such as:
- Division due to inheritance.
- Division following the sale of bare ownership with reserved usufruct for an individual.
- Donation or bequest of usufruct to certain legal entities.
- Contribution of bare ownership to a company.
However, there are some changes regarding the division between usufruct and bare ownership compared to the ISF. In the case of division (demembrement) of an asset in the context of an inheritance, each person must declare the respective value of their rights to the asset. This new rule also applies when the division occurs following the sale to a third party (or donation to a public body) of the bare ownership while the seller(s) retain usufruct.
The IFI replaces the ISF as of January 1, 2018. More of a revision than a full-fledged fiscal revolution, this "light" version is expected to generate about €850 million annually for the state, compared to several billion under the previous version.
The Three Key Points:
- The IFI replaces the ISF and is now limited to non-professional real estate.
- The IFI is a progressive tax, with a scale unchanged from the previous version.
- There are legal ways to reduce your IFI or benefit from an exemption: donations, furnished rentals, investment in unlisted SMEs, etc.
