French solidarity wealth tax (ISF)

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The wealth tax (ISF) is calculated from the net wealth of the fiscal household. All fiscal households are however not liable to this tax. Only those whose net worth exceeds €1,310,000 must fulfill it on January 1st of the tax year. The wealth tax affects everyone because, according to the INSEE (National Institute for Statistics and Studies), the occupational classes with the largest average wealth are self-employed professionals, especially farmers. Here is the working principle of this very French tax.

 

IMPORTANT  : The wealt tax « ISF » is no longer in practice since january 2018. It has been remplace by the « real estate wealth tax » known in french as « IFI ».

 

Tax domiciliation and heritage eligible to the ISF

In terms of ISF, the notion of heritage/assets taken into account in the calculation differs depending on the tax residence of the taxpayer.

1) The French tax residents

The assets taken into account in the calculation of the ISF include all the assets held in France or abroad of the taxpayer.

2) The foreign tax residents

The assets taken into account in the calculation of the ISF include only assets situated in France. It is also important to note that certain financial assets get out of the taxable plate.

These rules are those that generally apply when the tax treaty between the two countries does not include other provisions.

3 ) Specification for impatriates / expatriates

The persons transferring their tax residence in France after having spent at least 5 years without being fiscally domiciled in France, are only liable to wealth tax on assets located in France.

The taxpayers benefit from this exemption for 5 years from the date of their arrival in France.

The basis for calculating the ISF

As indicated above, the wealth tax is calculated from the net assets of the fiscal household.

Net worth is calculated using the following calculation:

Net Assets = Taxable net worth – deductible Liabilities

Base of « ISF »: The taxable assets

Taxable assets include all assets (real estate, furniture, financial… ) taken into account in the calculation of the ISF. Whilst most elements of personal wealth get into the tax base of the ISF, there are some exceptions.

Some goods are excluded from this tax base:

  • Art objects
  • Collectibles objects
  • Antiques more than 100 years old
  • Professional goods
  • Properties held under the status of professional landlord of furnished properties (LMP)
  • Rights of literary, artistic or industrial property
  • « Tontine » contracts (premiums paid before age 70)
  • PERCO, PERP and Madelin contracts

In addition, as part of a dismemberment of ownership, the bare owner excludes the good of his taxable assets to the ISF.

Other properties are only partially excluded from the tax base:

  • The assets exempted to 50% or 75% of their value such as woods and forests
  • The main residence (which is exempt for 30% of its value)

Adjustment of the wealth tax: the deductible liabilities

The deductible liability is all borrowings realised in order to finance the acquisition of taxable goods to the ISF.
For example, Mr Martin:

Mr Martin has financial wealth of €700,000. He also owns a rental home with a value of €600,000 and a second home worth €300,000. The taxable assets of Mr Martin thus amounts to €1.6 million.

To finance the purchase of his second home, Mr Martin borrowed €200,000. As at January 1st, he still had to reimburse €100,000 (deductible liabilities).

€1,600,000 – €100,000 = €1,500,000

The amount of ISF that Mr Martin will owe will therefore be calculated on the basis of €1.5 million.

Situations of separate taxation

The assets taken into account in the calculation of the ISF is not that of the individual, but that of the fiscal household.

However, in two well-defined situations, the spouse’s assets of a same fiscal household will be taxed separately:

  • When the spouses are married under the regime of separation of property AND they do not live under the same roof
  • When spouses are pending a separation or a divorce and they were allowed by the judge to have separate residences

The calculation of the ISF

Even is the payment of ISF only concerns taxpayers who have assets higher than €1,310,000, the wealth tax (ISF) operates from €800,000 in the form of a progressive scale.

For example, a taxpayer with a net worth of €1.4 million will be taxed on €600,000 (€1,400,000 – €800,000 = €600,000).

The applicable rates are as follows:

Share of net wealthTax rateMaximum tax on the portionMaximum cumulated tax
0 € – 800 000 €0 %0 €0 €
800 000 € – 1 300 000 €0,50 %2 500 €2 500 €
1 300 000 € – 2 570 000 €0,70 %8 890 €11 390 €
2 570 000 € – 5 000 000 €1 %24 300 €35 690 €
5 000 000 € 10 000 000 €1,25 %62 500 €98 190 €
Plus de 10 000 000 €1,50 %Illimitéillimité

Case study on the ISF

Mr Dupont, French tax resident, has a net worth of €2 million as at January 1st, including a vintage car of 1904 with a value of €100,000.

Mr Dupont’s taxable assets under ISF rules therefore amounts to €1.9 million.

€1,300,000 – €800,000 = €500,000                           €500,000 x 0.50 % = €2,500

€1,900,000 – €1,300,000 = €600,000                        €600,000 x 0.70% = €4,200

€2,500 + €4,200 = €6,700

Mr Dupont owes €6,700 to the French tax authorities with regards to the ISF.

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