Real estate assets

Real estate assets

 

  • The taxable base corresponds to the sale value of real estate assets owned by the household;
  • The main residence may be subject to a 30% allowance, which is not applicable if the main residence is owned through a company (including a SCI);
  • Furniture is normally estimated at 5% of the gross value of assets, unless an inventory shows otherwise;
  • In the event of subdivision of ownership, the usufructuary is taxable on the value under full ownership of the real estate.  

Taxable assets

The scope of the real property wealth tax is wide.

Non-residents are subject to the tax on all the French property assets they own directly or indirectly (whatever the number of intermediary entities, their nationality, or place of establishment).

Naturally, shares are only taxable on the portion of their value related to French real property assets.

Applicable exclusions

However the new regime provides for various exclusions from which non-French tax residents may benefit, inter-alia:

  • properties directly or indirectly held by an operating entity which assigns them to its business;
  • properties directly or indirectly held by an operating entity in which the taxpayer holds directly less than 10% (assessed at the tax household level);
  • properties directly or indirectly held by a listed REIT in which the taxpayer holds directly or indirectly less than 5%;
  • properties held indirectly through an entity in which the taxpayer hold less than 10 % and where he demonstrates that he is unable to obtain the information necessary to assess the taxable value of its shares (i.e. bona fide clause). 

Debt deduction

Debts incurred by a taxpayer can be offset from the taxable value of the asset to which they relate. Subsequently, debts incurred by interposed entities and related to taxable assets are taken into account in calculating the taxable value of the shares.

However, several anti-abuse provisions have been adopted to prevent tax-driven leveraged acquisition!

Debt incurred by the taxpayer

Are not taken into account the debts related to loans granted directly or indirectly: 

  • by the taxpayer (or any member of its household); 
    Safe harbor:  none. 
  • by a member of the taxpayer's immediate family (i.e. parents and siblings);  
    Safe harbor: the limitation does not apply where the taxpayer justifies that the loan has been granted under normal market conditions (inter alia: actual reimbursement, compliance with the terms agreed…) (“normal market conditions test”). 
  • by any entity controlled directly or indirectly by the taxpayer (alone or with the members of its household or of its immediate family); 
    Safe harbor: normal market conditions test. 

In addition: 

  • when the aggregated market value of the taxable assets held by a taxpayer exceeds € 5M and that the related tax deductible debts incurred by this latter exceeds 60% of the taxable assets’ market value, only 50% of the debts exceeding the € 5M threshold are tax deductible. 
    Safe harbor: the limitation does not apply where the taxpayer justifies that the debts have not been primarily contracted for tax purpose (“principal purpose test”). 
  • bullet loans (repayable at maturity) are treated as amortizing loan. 
    Safe harbor: none. 

Debt incurred by interposed entities

Regarding shares valuation, are not taken into account:

  • debts incurred by any interposed entity for the acquisition of a taxable asset from the taxpayer (or any member of its household) which controls such interposed entity (alone or with the member of its household); 
    Safe harbor: principal purpose test.
  • loans granted directly or indirectly by the taxpayer (or any member of its household) in proportion to his stake in the borrowing entity (assessed at the level of the taxpayer’s household); 
    Safe harbor: principal purpose test. 
  •  loans granted directly or indirectly by the immediate family of the members of a taxable household in proportion to their stake in the borrowing entity; 
    Safe harbor: normal market conditions test.
  • loans granted directly or indirectly by any entity controlled directly or indirectly by the taxpayer (alone or with the members of its household or of its immediate family) in proportion to his stake in the borrowing entity (assessed at the level of the taxpayer’s household); 
    safe harbor: principal purpose test.

Please note however that:

  • the Principal purpose test consists in a subjective test (what is the aim of the taxpayer contracting directly / indirectly the loan?) giving French tax authorities discretion.  The fact that has been chosen “primarily contracted for tax purpose” instead of “sole tax purpose”, or “predominant tax purpose”, creates significant uncertainty;
  • regarding the Normal market conditions test, in the absence of a specific definition of the “normal market conditions”, the French tax authorities may require the taxpayer to obtain an appropriate quotation issued by a third-party (e.g., financial establishment) in order to sustain that the loan has been granted under normal market conditions.

 

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focus // sale price

This value is assumed to correspond to the market value, or the price that would be obtained on the market under normal conditions. 

The tax administration can only challenge a value declared by the taxpayer by demonstrating that it is undervalued when compared to transactions made with comparable assets prior to the date of taxation (generally using the price per square metre (m2)). 

Some allowances may apply in order to take account of the use of the property (e.g. leased residential buildings) or specific characteristics (floors, location, configuration, etc.): comparable does not necessarily mean similar. 

Other methods may be used for unusual assets. 

 


This document and the information it contains are intended to provide as complete and accurate information as possible. It is however theoretical in nature and must undergo all necessary checking prior to its application. FiscalImmo and its authors cannot in any circumstances be held liable on the basis of this document.