What do you have to know about IFI ? Does it apply to you?

Are you a property owner ? Does property wealth tax (IFI) apply to you? What do you have to know about IFI (Impôt sur la Fortune Immobilière) ?

Whilst France is a beautiful place to stay and own property despite being non-Resident there could be tax to pay in France.

Since 1 January 2018, the wealth tax (ISF) has been transformed into a property ownership tax (IFI).

One could be subject to property tax (IFI) if the net value of one’s real estate assets exceeds € 1.3 million. This property includes all real estate and property rights held both directly and indirectly on January 1st. However the law was amended on January 1, 2019. This change meant depreciating debt on property owned by companies thereby disallowing part of it. This especially effects interest only loans. This means that one needs to check what debts can be deducted from the value of one’s wealth.
IFI is calculated on the net value of taxable property assets on January 1, 2019, after deduction of the debts existing on January 1, 2019, provided that they are allowable arms length loans.

To be deductible, debts must therefore :

exist on January 1 of the tax year;

be personally dependent on the taxpayer or one of the persons constituting his tax household;
relate to certain expenses incurred for the purposes of an asset taxable for tax on real estate wealth (IFI) – acquisition or works
be justified by any means of proof compatible with the written procedure.

Important :

Shareholders accounts of real estate companies within the limit of their accounting value at the date of Dec. 31, 2017 could be considered again as deductible liability for real estate wealth tax (IFI) issues.
When the market value of the taxable assets exceeds 5 million euros there is a special calculation to reduce the allowability for direct ownership. However this limitation does not apply to debts for which the person liable justifies that they have not been contracted for mainly tax purposes

Considering the new notional deductibility rule of bullet loans, we note that the law text is very general and opens the door to many interpretations

Not surprisingly that leads to many questions that need to be answered

On a capital repayment loan this is fairly simple as it has a clear repayment schedule; the remaining capital due is deductible.

This is not the case however for an interest only loan. How should one deal with this in practice? How does one calculate the depreciation of a loan and on what basis?

Should the acquisition date or the first day of the current credit be considered as the beginning of the notional amortization period?

Similarly, some bullet loans have been refinanced several times with each time larger amounts. Therefore, what amount should be taken into account? The initial amount of the acquisition? The current amount? Which period has to be considered for such loans that are, for example, issued for 5 years renewable by the bank? And what about the work for which we believe that the credits subscribed to their effect can remain fully deductible in many cases

Each file is different and should be dealt with on an individual basis. It is important to audit each loan contract, company accounting, to understand the possible different methods and together with the clients agree the most appropriate calculation that applies for them. We are frequently addressing this new legislation and working with the clients on this subject to respect the new legislation.

Given the new rules, it is important for each client to know whether or not they are subject to the IFI. If a taxpayer does not file a return with the tax office, he may receive a tax adjustment notice with penalties and interest, plus the tax. In addition, tax office will apply its own valuation method for the determination of the property price, which is rarely favorable to the taxpayer.

Payment :

Since last year, taxpayers no longer have to settle their IFI concomitantly to the completion of their returns. A tax notice will be sent to them in August and they will have to pay the IFI by 16 September at the latest. As soon as its amount exceeds 300 euros, the IFI must be paid online at Impots.gouv.fr.