French Real Estate and The New Wealth Tax: To Finance or Not?

French Real Estate and The New Wealth Tax: To Finance or Not?


When acquiring real estate in France, one can be confronted with a range of different taxes. The three main taxes to consider are: Wealth Tax, Capital Gains Tax and Inheritance Tax.


Wealth Tax
Wealth Tax is calculated over the net value of the taxable asset; the value of the property minus deductible financing. This usually equates to between 0.5% and 1.25%, up to a net value of €10 million, and 1.5% thereafter. Wealth Tax applies to all properties valued above the €1.3 million mark. The Wealth Tax is an annually recurring cost. Please note that the deductibility of the Wealth Tax has changed.


Capital Gains Tax
Capital Gains Tax is applied when a property is sold for a higher value than for which it was acquired. Non-EU citizens generally require a fiscal representative.

Although financing does not affect Capital Gains Tax, there are a number of other options that can be considered. For more information please contact Discreet Advisory.


Inheritance Tax
Inheritance Tax is calculated over the market value of the property minus financing. However, there are a number of different ways to mitigate this tax other than financing. For non-French residents, Discreet Advisory offers a number of structures to mitigate such taxes, please contact us (link) for more information.


Although, financing is an effective way of reducing Wealth Tax and Inheritance Tax, there are other factors that we encourage our clients to take into account.

The French mortgage market, for loans above €3 million, is dominated by international private banks. Typically, these banks will finance the property completely, asking the client to provide between 20% and 50% of the loan facility in assets. The banks will manage these assets for a fee and will charge an interest rate for the loan facility.

Although this can be the most appropriate method of financing, we advise our clients to consider the alternative use of the funds that the loan facility will provide. If the client is able use their funds for investments that have a considerable higher return on investment than the bank costs and interest rate, then it is worth considering financing. However, if this is not the case, and bank cost and fees are higher than the wealth tax, financing may not be the right option.

In cases where our clients require financing to acquire the property, they must consider which type of financing that would be most appropriate and cost effective. Although interest only mortgages are often the ‘go-to’ option for such clients, they are only appropriate if the client will have the required cash to pay for the property at the end of the loan or the final refinancing. If the client has any doubt that this will be the case, we often recommend that the property should be financed by an amortizing loan, which can be borne by the current and future cash of the buyer.

Overall, financing could be a good way to mitigate taxes, but whether it is the right route requires careful consideration and should be part of a holistic approach, considering everything from the client’s international estate planning to the client’s local circumstances.

At Discreet Advisory we work closely with our client’s to understand their individual circumstances and tailor solutions for each client. Should you require advice on financing properties or international estate planning, please contact us.



The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal or fiscal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Discreet Advisory accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog.

©Discreet Advisory 2018