The French Government has tabled its Finance Bill for 2018
before the French Parliament for debate.
Given the majority held, it is likely to pass through with few
amendments, but its implementation will be technically complex, and
trustees and individuals owning French immovable property held
directly or indirectly will need to be aware of the regulatory
The removal of l'impôt de solidarité sur la fortune
(ISF) and its replacement by the proposed impôt sur la
fortune immobilière (IFI) will mean significent changes for
non-resident trustees in particular.
The annual levy return n° 2181 Trust2 will be significantly
modified, in that article 990J has been curtailed and restricted to
immovable property held directly and indirectly, thus excluding
movable investment portfolios from that declaration. Trustees
or their investment managers with an interest in French investment
exposure should therefore be looking carefuly at this propitious
opening, given Président Macron's stated aim of encouraging liquid
capital investment in France, at least until the next shift in
French political economic policy.
The fundmaental point is the the tax basis will change from a
gross value declaration to a declaration of net value. That means
that subject to certain capping and exclusion issues which I will
adress further down, mortagage liabilities will be deductible and
declarable to arrive at the overall net value of the immovables
assets held by the individual taxpayer concerned. Whilst the
threshold remains fixed at €1.3 mllion, and the rates will not
change, those are based on net values.
Trustees therefroe will still need to liaise with setlors an
dbeneficiaries where these are caught by the tax to ensure tht the
imovables are being declared, otherwise the trustee prélèvement
will continue to be levied at a rate of 1.5%. Ther have been
successful constitutional challenges to the administrations's
policy of double charging ISF and the prélèvement, please contact
Peter for details.
However, trustees should remember that the trusts régime in
place is not simply directed to Wealth tax, but also to gift and
succesion taxation. The trusts régime on those taxes will
remain unchanged as will the basic fundamental travesty
of a definition in article 792-0 bis CGI. That means that the
"événement" or event declarations 2181 Trusts1 will continue to be
requred on a gross asset basis for any constitution, modification,
or termination of a trust as perceived by the French.
That is opposed to the new net asset basis which will become
applicable under the new IFI to the 2181 Trusts2. The devil
or, depending on your perspective, the angel will be in
the details of the decree modifications and the forms.
The one point to bear in mind is that the well worn but
aggressive pratice of financing high value French property
acquisitions through 100% bullet / term repayment mortages will
cease to be as attractive. Such mortgages or affectations
hypothécaires will no longer be deductible for IFI in their
totality, but will only be deductible on a pro rata temporis basis
by reference to the amount to capital remaining outstanding on a
deemed amortisement basis, if article 12 of the PLF is passed
as it is. Attention also where no interest is actually "paid"
in a purely captive context, as put simply, that roll-up into debt
coupled with non-amortissement of the capital may be construed as
either the French equivalent of a sham ("transaction fictive") or
an "abus de droit" if coupled with non-repayment of any capital
during the term of the loan.
Also, where the value of immovable property as a whole exceeds
€5 million, then, to the extent that the total debt exceeds
60% of the value of the total value of immovable property declared,
there will be a cap applied as to 100% deduction. Only 50% of
the balance of the debt over the 60% cap will be fully
deductible. This will be of general application, not just to
trustees, and is an attempt by the Government to recover tax where
it would otherwise be eluded.
Peter has set out his initial synopsis of the changes at the
following link to our
Resources page, so please read it and contact him for
further information and assistance in any matter concerning the
Finance Bll (version as tabled before L'assembléé nationale)
and what it entails.