French Real Estate Wealth Tax (IFI) and Non-Residents: What Every French Expatriate Needs to Know
Moving abroad does not put an end to your French tax obligations. It is in fact one of the questions my expatriate clients ask most often: does a French non-resident who owns property in France still have to pay the real estate wealth tax (impôt sur la fortune immobilière, or IFI)? The answer is usually yes, but the applicable regime has important specific features that must be mastered in order to optimise your wealth position and avoid any tax reassessment.
As a lawyer specialising in tax law, admitted to the Marseille and Geneva Bars, I assist French nationals living abroad on a daily basis in structuring and securing their French real estate holdings. Here is a complete, up-to-date overview of the IFI as it applies to non-residents.
What is the real estate wealth tax (IFI)?
The IFI replaced the ISF (impôt de solidarité sur la fortune, the former general wealth tax) in 2018. It now applies only to real estate assets, to the exclusion of financial investments (shares, bonds, cash, life insurance, and so on). A French national settled abroad may hold assets outside France, but also in France: in the latter case, he or she may become liable to the IFI in respect of real estate assets located on French territory alone.
Key point for non-residents: for individuals whose tax domicile is not in France, the IFI is due only on real estate assets located in France, and not on their worldwide wealth.
What is the IFI threshold?
To be liable to the IFI, the net value of real estate assets located in France must be equal to or greater than €1,300,000. The tax applies exclusively to real estate assets, and liability is assessed as at 1 January of each year. An expatriate couple considering buying property in France must therefore systematically factor this threshold into their wealth planning.
Can a non-resident be subject to the IFI in France?
Yes, and this is where matters often become complicated for my clients. Consider a practical example:
Mr X, a resident of Liechtenstein, owns real estate in France worth €2,000,000. Is he subject to the IFI in France?
In the absence of a tax treaty between France and Liechtenstein covering the IFI, Mr X will be liable to wealth tax in Liechtenstein, but also in France, in respect of the assets held in France alone. The tax paid in Liechtenstein will not be creditable against the IFI due in France.
This case illustrates an essential principle: the country of residence may also levy a wealth tax on the assets held by the individual, which can, in the absence of a treaty, result in double taxation. This is why France has signed numerous international tax treaties designed to avoid such situations. Before any acquisition or restructuring of your holdings, it is therefore indispensable to check whether a tax treaty exists between France and your country of residence, and what it provides.
Which investments fall outside the IFI for a non-resident?
The IFI taxes real estate only: financial investments made by non-residents are not subject to the IFI. This is a significant advantage of non-resident status.
Mrs Z, domiciled in Germany, a country that has abolished its wealth tax, wonders whether it is worthwhile placing part of her wealth in France.
Yes: she may invest in life insurance or capitalisation contracts with French institutions, acquire shares or bonds, or place funds in shareholder current accounts, without these assets being subject to the IFI. Two important qualifications apply, however:
this rule does not apply to French nationals who have been living in Monaco since 1 January 1989, who continue to be treated as French residents for the purposes of many tax rules;
the French tax authorities have narrowed the concept of financial investments: participating interests (more than 10% of the share capital, subscribed on issue or held for at least two years) are not regarded as exempt financial investments for IFI purposes.
Should French property be held through an SCI?
This is one of the most frequent wealth-planning questions. Take the example of Mr and Mrs A, domiciled in Italy (a country with no wealth tax), who wish to acquire property in France worth €2,000,000.
If they buy the property directly, they will be liable to the IFI as soon as the value of the property exceeds the taxable threshold. If the purchase is financed by a loan, the outstanding capital is deducted from the value of the property, which may allow them, temporarily, to escape the IFI. But as the loan is repaid, the net value of their holdings increases and may, in time, exceed the taxable threshold.
If they set up an SCI (société civile immobilière, a French property-holding company) to carry out the acquisition, the SCI shares will themselves be subject to the IFI if their value exceeds the threshold: the tax authorities do not treat shares in a predominantly real estate company as exempt financial investments. Here again, a loan taken out by the SCI reduces the taxable value of the shares.
Point of caution: shareholder current-account advances made by non-resident shareholders can no longer, as a rule, be deducted when determining the value of shares in a predominantly real estate company, unless it can be shown that the loan was made on normal terms (compliance with the repayment schedule, amount, and actual repayments).
In conclusion on this point: the SCI is not an IFI exemption tool, but it remains a valuable instrument for organising, managing and passing on family real estate holdings, provided that its financing arrangements are carefully planned in advance.
Our recommendations for French nationals living abroad
Always check whether a tax treaty exists between France and your country of residence in respect of wealth tax.
Carefully distinguish your real estate assets (subject to the IFI) from your financial investments (exempt, subject to exceptions).
Anticipate the effect of loan repayments on the net taxable value of your holdings over time.
Assess the merits of an SCI in light of your management and succession objectives, not as a mere IFI-avoidance device.
Seek the assistance of a tax lawyer who is familiar with both French law and the specific rules of your country of residence: tax law evolves quickly in every jurisdiction.
Frequently asked questions (FAQ)
Does a non-resident have to file an IFI return in France?
Yes, as soon as the net value of his or her real estate assets located in France is equal to or greater than €1,300,000 as at 1 January of the tax year.
Do non-residents benefit from a specific allowance on their home in France?
The allowance rules applicable to the main residence are reserved for French tax residents; a non-resident cannot, as a rule, benefit from them for a property that cannot qualify as his or her main residence in France.
Are cash and life insurance subject to the IFI for a non-resident?
No: the IFI applies to real estate assets only. Financial investments (life insurance, securities accounts, cash) held by a non-resident fall outside the IFI, subject to the exceptions applicable to participating interests and to the special case of Monaco.
Does an SCI allow you to escape the IFI entirely?
No. Shares in a predominantly real estate SCI are themselves included in the IFI base if their value exceeds the statutory threshold. The SCI nevertheless remains a useful tool for structuring and passing on wealth.
What happens if there is no tax treaty between France and my country of residence?
There is a risk of double taxation: you may be taxed both in your country of residence and in France, with no possibility of crediting one against the other, as illustrated by the case of Liechtenstein residents.
Conclusion
Expatriation therefore does not automatically exempt you from the real estate wealth tax: as long as you keep real estate in France above the statutory threshold, the IFI remains applicable, whatever your tax residence. The good news is that non-resident status also opens up real optimisation opportunities, particularly with regard to financial investments. Since every situation is unique (country of residence, existence of a tax treaty, intended holding structure), tailored advice is essential to secure your choices.
Eve d'Onorio di Méo
Lawyer, Certified Specialist in Tax Law
Marseille and Geneva Bars (EU/EFTA Lawyer)
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