As advertised last year, the French projet de loi pour
2018 proposed a repeal of French Wealth tax (ISF) , and the
introduction of a more restricted wealth tax which would be limited
to immovable property, but again only non-productive immovable
residential assets. This is now known as the impôt sur la fortune
immobilière or IFI.
French vineyards and agricultural holdings will remain outside
the IFI net, as will property with commercial and industrial user.
However residential property and chalet lettings will not escape
the IFI, unless structured.
After a good deal of Parliamentary too-ing and fro-ing as to the
economic legitimacy of a Wealth tax on immovable property, its
effect on the French economy, and what is more the difficulty in
assessing and collecting it, the measure was passed as article 31,
and there is now no more ISF, but the IFI.
The Conseil constitutionnel has reviewed certain clauses of the
Bill under the usual appeal procedure, and barring one blemish as
to attribution of tax liability as between usufruitiers and
nus-propriétaires, has confirmed that the Parliamentarians have
acted within the Constitution in passing the IFI.
The law is now in force and the provisions in its article 31 are
now incorporated into the Code général des impôts.
For those able to decipher the amendments in the context of the
Code général des impots (CGI) a link to the text of article 31 of
the Finance Act can be found here.
Put simply, the new tax rates are identical to the old ISF
rates. When the net value of immovable property exceeds the
threshold of €1.3 million, the IFI will be levied at progressive
rates from a net value of €800.000. The table of rates is set
out at Art. 977 which can be found at page 13 of the
Firstly, any trustees still involved indirectly in French
property will be glad to hear that one of their French declaration
requirements has disappeared, at least for trustees holding purely
movable assets. Unless they are directly or indirectly holding
immovables situated either in France or are French connected in
terms of beneficiaries or settlors or deemed settlors, the annual
declaration of assets 2181 Trust2 will no longer be applicable to
However, trustees are not off the declarative hook, as the
succession and gift duty side of the article 792-0 bis CGI trusts
régime remains unrepealed, and Event declarations n° 2181 Trust1 on
modifications of French connected trusts will still be
required. Trustees will still therefore need to monitor and
where appropriate declare movements of beneficaries, settors and
other assets into or out of France with the same care under the
same threat of penalties of €20.000 per omission.
It was frequent that expensive properties in France were funded
by term loans designed to reduce the value of properties for Wealth
Tax. These permanent credit arrangements have caught the eye of the
French administration who can now deem the loans to be paid back in
instalments, thus reducing the amount deductible over time.
Those who have taken loans from Trustees or personally owned
companies to fund property purchases in France will need to review
their position given the anti-avoidance provsions contaed in the
Whilst most of the anti-dilution measures are aimed at French
methods of reducing the tax basis, such as inter family loans or
loans from closely held investment companies, those anti-dilution
rules will also affect certain structures used by
Whilst one of the admitted difficulties with the law is that it
will require a detailled investigation of foreign structures
involving non-residents by French tax inspectors, I would advise
caution before making any assumption that a complex opaque
structure will shelter non-residents or residents from the new
Property portfolios worth over €5 million will only have 50% of
the loans outstanding on the properties allowed as a deduction
where the loan to asset ratio exceeds 60%.
The French legislator has taken steps to remove the advantage of
term loans payable either at a given date or of an indefinite
duration. The effect of these devices was in fact to reduce the ISF
due by seeking to go permanently under the threshold, with a few
other niceties to maintain the increasing value of property within
the loan amount - with interest. Those singularly agressive methods
of financing French high value property will now come under
scrutiny, as the legislation assumes that any undefined term loan
will be deemed fiscally amortised (repaid) by annual instalments
over a 20 year period, therefore reduceing the value of the
deduction annually, and, where the term date is defined, the
deductible amount of the loan will be prorated and therefore
reduced by deemed annual instalment repayments over the time
Further, any existing term loans are likely to be reviewed by
the administration , from the mortgage register which they
administer. The risk is that these might possibly even be
retrospectively fiscally amortised from the date from which they
were taken out, rather than as from 1st January, 2018. There
has been no administrative indication of the position on that
point. If a term repayment is defined in the loan, then the
loan will be deemed to be fiscally repaid by a yearly fraction
calculated by reference to the length of the term and the
deductibility calculated accordingly. If no repayment date is
specified in the loan, these will be deemed to be fiscally
amortised over twenty years.
The manner in which the rules will be applied will be set out in
the Instructions to be published between now and June.
French residents will need to be very careful if they have an
interest in English land held under a ToLATA 1996 trust of land.
Declaring this as a trust, as opposed to land will lead to
significant and entirely unnecessary compliance obligations. Please
refer to Peter for advice on this point, as he has successfully and
entirely lawfully navigated English trusts of land outside the
declaratory fictions of Scylla and Charybdis of the French trust
régime. A marked statutory channel leading to a
functionaire's or wreckers paradise ...