The wealth tax substituted by the real-estate tax in France

The wealth tax substituted by the real-estate tax in France

The 2018 Financial law provides the wealth tax substitution by a real estate tax. The scope of this real estate tax is reduced to real estate assets.
The real estate is defined as all properties and real estate rights as well shares companies or organizations representing real estate.

Liability condition is still the same: the property net value has to exceed 1.3 M€ and tax will be calculated from 800 000 € amount. Scale is unchanged.

Some new liabilites deduction rules are changing the game:

New liabilities deduction rules are going to apply especially to foreign tax residents:

  • Bullet loan: loans permitting to repay the capital at the end of the contract would not allow the same deduction anymore. The liability amount deductible will be reduced each year by a fraction of the total amount.
    • Calculation details:
      Total loan amount * number of years since the loan payment
      Loan total number of years
    • For example: 2 M€ bullet loan took out in 2017 January for a period of 20 years. Deductible amount at the 1st of January 2018: 2M€ – 2M€ * 1/20 = 1.9M€ instead of 2M€. Deductible amount at the 1st of January 2028: 2M€-2M€ * 10/20 = 1M€ instead of 2M€

The purpose is to avoid people contracting bullet loans to reduce their taxable basis to real estate tax.

  • Debts ceiling : when the value of properties and real estate rights as well shares companies or organizations representing real estate exceeds 5M€ and the total liability deductible amount is higher than 60% of this value, the deductible amount allowed is reduced to 50% of the surplus.
    • For example: a real estate property estimated 8M€ and 6.5M€ outstanding capital, the deductible amount of liability would be 5.65M€ instead of 6.5M€ with current rules (calculation details: 4.8M€ (60% x 8M€) + 850 K€ [(6.5M€ – 4.8M€)/2]).

2018 Financial law has been passed, yet we still have to wait its publication in the Official Journal.

We remain at your disposal if you have any questions, feel free to contact us!

The wealth tax substituted by the real-estate tax in France

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