Interview Rob Schols of Discreet Advisory Services
The new French wealth tax on real estate is a fact. Structuring of an acquisition is even more important.
Everybody is talking about the new French wealth tax. But what is it, and how does it differ to its predecessor? The world’s leading high net work mortgage broker, Enness, sat down with Rob Schols of Discreet Advisory Services in Monaco to find out more.
Previously, Impôt de solidarité sur la fortune (ISF), a ‘solidarity tax on wealth’, was an annualdirect wealth tax on those with assets over €1.3million. In addition to real estate, this applied to all financial assets.
This will soon be replaced with a new French wealth tax which only applies to real estate assets, called Impôt sur la Fortune Immobilière (IFI). IFI will apply to both residents and nonresidents. However, movable assets (liquidities, shares in companies that do not own real estate, furniture, etc) will be outside the scope of IFI. This is excellent news for many individuals who have assets in France.
How will IFI be calculated?
If the net taxable base of real estate assets is more than € 1.300.000, an increasing rate of 0.5% to 1.5% is applied on that base as from €800.000 upwards.
Has it already been decided? When will it come into play?
IFI has already been voted for, and will come into force from January 1st, 2018. The new rules will apply from this date.
How will this affect those with assets in France? Where do you see the biggest changes?
Beside the smaller scope of IFI, I would say the biggest change is the introduction of a limitation of deductibility of debts in connection with taxable assets. In many cases, these will still be deductible, but the IFI foresees a limitation of deductibility.
For example, this means that an interest only loan on a ten-year term will decrease each year (in a fictive manner) by 10%. Debt exceeding 60% of the market value of real estate assets (if this value is greater than €5million) will see its deduction capped to 50% of the debt that exceeds this amount.
Does this mean that careful planning is no longer necessary?
France has never been a tax haven for investors of real estate. When you acquire a property in France, you must accept a certain level of taxation. However, I feel that considering this new legislation, planning makes even more sense. Many types of loan are still deductible, so financial advisors must be creative to find the best and newest solutions for their clients.
Everybody is focusing on this now, but what else must be taken into account?
Besides the French wealth tax, an investor in French real estate should be aware that France also levies inheritance tax. Spouses are exempt from French inheritance tax, which is already a good start. However, children are within the scope of French inheritance tax, and the tax rates are progressive from 0-45%.
Fortunately, there are perfectly legal ways of efficiently optimizing this inheritance tax burden. In the end, nothing is certain except for death and taxes—but this should not prevent investors from purchasing French real estate and enjoying life on the French Riviera.
The key to optimizing a client’s situation is for the advisor to take a holistic view of the client’s overall position and structure carefully in accordance with this.
What impact will this have on the product offering of banks?
Banks will need to adjust their product offerings in line with the new situation. The best course of action is to work with a strong party like Enness, whose excellent lender relationships put them in the best possible situation to negotiate on your behalf.
This interview on French wealth tax was conducted by Enness, a high net worth mortgage brokerage with offices in London, Monaco and Dubai. Enness works with high net worth individuals from around the world, and can also assist clients with complex requirements. For information on property finance in Europe, please visit www.ennessinternational.com For information on UK property finance, please visit www.enness.co.uk.