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French wealth tax (ISF) abolished and replaced with a new property wealth tax (IFI)

What has changed since January 1st 2018?

January 1st 2018 marked the removal of the ISF wealth tax from French law and the birth of a new property wealth tax called IFI.
Before we explain the major changes that this new tax implies, here is an outline of the main principles behind it and which remain unchanged.

Who is liable?
  • French tax residents, on their worldwide assets
  • Non-residents, on their French assets
Frequency ?

Annual

Accrues on?

January 1st of the tax year

Threshold

€ 1,300,000

The rules on deductions, upper limits and tax brackets are maintained:

Tranche of net taxable value of assets:

Tax rate

Below

€ 800,000

 

 

0%

From

€ 800,000

to

€ 1,300,000

0.50%

From

€ 1,300,000

to

€ 2,570,000

0.70%

From

€ 2,570,000

to

€ 5,000,000

1%

From

€ 5,000,000

to

€ 1,000,000

1.25%

Above

€ 10,000,000

 

 

1.50%

The central feature of the reform relates to which assets are taxable.

Changes specifically affecting non-residents

Before the reform: in cases of indirect ownership, non-residents were only liable for ISF on shares in companies that were predominantly real-estate companies (where French real estate assets made up more than 50% of total assets) and on shares in companies in which their stake exceeded 50% (either alone or as a family group).

Since January 1st 2018: all company shares owned by non-residents are taxable assets subject to IFI, in proportion to the share of real estate assets or rights owned by the company (there is an exemption for shareholdings of less than 10% in operational companies).

Changes affecting all those liable for IFI (resident and non-resident)
  • Calculation methods applied to shares in companies with real estate assets or rights on their books
  • Rules on which debts are deductible
  • New anti-abuse clauses (excluding certain loans taken out by the taxpayer)
  • Restrictions on the tax benefits of in fine loans taken out by those liable for IFI (including loans given before January 1st 2018)
  • Upper limit on the amount of debt that can be deducted when the taxable assets are worth more than € 5,000,000
  • Removal of certain tax credits (such as the ISF tax credit for investing in SMEs).

Authors

The picture of Sophie Marquet
Sophie Marquet
Avocat Associé | Partner
Monaco