Ed Note Oct 2017 - There are significant changes being made to wealth tax, which are currently passing through the French parliament. We will update this guide when it becomes law in a few months.
Since 1989 there has existed a wealth tax in France, which is called Impôt de solidarité sur la fortune (ISF).
It is a tax that has attracted a lot of publicity abroad, much of it misinformed, because it is paid by relatively few people (around 500,000) and the amounts paid are generally very small.
Nevertheless, with the increase in the value of property in France in recent years it is a tax that is catching those who may be 'capital rich’ but ‘income poor’ and who may, therefore, find it difficult to pay the tax.
Nevertheless, there is an exemption from the tax for five years on those assets located outside of France, for those who become resident in France.
The concession includes both real estate and other tangible and intangible assets, and applies irrespective of nationality.
Thus, for the first five years of you becoming resident in France (to 31st Dec of 5th year), you will only be liable for the wealth tax on those assets located within France.
After this date, the tax is payable if you have total worldwide net assets in excess of €1,300,000.
There are certain deductible allowances before the calculation of net assets, notably for certain types of debt and investments.
If you are resident in France there is also a 30% allowance against the value of your principal home. This concession does not apply to second homes and the discount does not ordinarily apply in relation to a property held through a Société Civile Immobilière (SCI).
The applicable date for determining net assets is 1st January in the year of imposition.
Accordingly, whatever may have transpired in the household during the year is not applicable for the purposes of assessing liability to the tax, as it is based on the situation as at the beginning of the year.
The extent of your liability will depend on whether or not you are resident in France.
As a result, the value of your second home in France will be used to assess your liability to wealth tax, even though you may not resident in the country.
In determining your wealth the total net assets of the whole household are taken into consideration.
It is for each household to assess and determine for themselves whether or not they consider they are liable to pay wealth tax. There is no need for a professional valuation to be made.
To some extent, therefore, there is an element of voluntarism in the declaration of tax liability!
However, in the event that the tax authorities decide that you are liable to pay wealth tax, they are entitled to collect arrears of payment over the proceeding 10 years.
The French tax authority does have sight of all property transactions in the country so will be aware of the price you paid for a property.
In relation to residential properties that are let the authorities would ordinarily accept valuation of such a property on the basis of capitalisation of the rent at the rate of 5%. Commercial properties can be capitalised at 8%.
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