The estate tax return must be filed by persons whose estate assets exceed 1,300,000 euros as of January 1, 2021, on the same deadline as the general income tax return. In principle, it is filed with the 2042 return. In the specific case where the taxpayer has no income to declare (and therefore does not file a 2042 return), it must be accompanied by the so-called “light” return 2042-IFI-COV-K.
A brief description of the characteristics of the real estate wealth tax
The Real Estate Wealth Tax (IFI), introduced by Article 31 of Law 2017-1887 of December 30, 2017, replacing the ISF (Solidarity Tax on Wealth/Welfare), is payable by individuals whose real estate assets exceed €1,300,000.
The tax is annual
It is generated on January 1st of each year. It is on this date that it must be determined whether the conditions for the creation of the tax liability, the composition of the assets and valuation of the property, the amount owed, the situation of the tax economy, the residence of taxpayers, which determines the scope of the tax and, if applicable, the place where the return is to be filed.
The IFI applies only to individuals. Legal entities of public or private law (companies, associations, etc.) are not taxable. IFI is only imposed on individuals whose assets include taxable property whose net value after deduction of debts exceeds €1,300,000.
Taxation by tax households
The tax limit is assessed at the taxpayer’s family level, including spouses (married, related PACS, or living in a common-law relationship) and minor children for whom they are legally managing property.
- a) For married persons, the tax base consists, in principle, of all real property of both spouses, regardless of their marital regime, as well as minor children with respect to whom they legally administer the property.
However, each spouse is subject to IFI tax separately on his or her taxable assets and on the assets of his or her minor children if he or she legally manages their assets, in two situations:
- The spouses are separated and not living under the same roof;
- The spouses are in the process of divorce or legal separation and have permission from a judge to live separately.
In this case, the administration agrees that the assets of minor children whose parents share legal management will be divided equally between the two households.
- b) For partners bound by a contract of civil solidarity (Pacs), the tax base consists of all of their real estate assets as well as the assets of minor children for which one of them legally administers the property.
- c) For persons living in a common-law marriage, the tax base also consists of all of their real property assets as well as the assets of minor children with respect to which one of them legally administers the property.
It is specified that cohabitation is defined as “a de facto union, characterized by a stable and continuous life together, between two persons of different sexes or of the same sex who live as a couple” (article 515-8 of the Civil Code).
Individuals with permanent residence in France
Regardless of citizenship, a taxpayer whose tax domicile is in France is taxed on all his or her real estate located in or outside France. However, the tax domicile of the spouse and children must be taken into account to determine the scope of the IFI for each of these individuals.
The criteria for tax domicile meet those of Article 4 B of the Internal Revenue Code.
Persons residing outside France
If the taxpayer does not have domicile for tax purposes in France, he is taxed only on his immovable assets and rights located in France and on his shares in companies or entities (established in France or abroad) to the extent of the proportion of their value representing those same immovable assets or rights.
Effect of international treaties
If there is a bilateral tax treaty, tax residency may be assessed according to the rules set forth in the treaty.
The treaty may provide for either a division of taxation according to the category of property involved, or exclusive taxation in one or the other state.
With regard to the problems of allocating the right to tax between States and eliminating the risks of double taxation, three categories of countries should be distinguished:
- a) countries with which there is a convention (or provision) explicitly covering wealth taxation (or former ISF or IGF): the rules contained in the conventions apply;
- b) countries with which there is a convention containing sufficient provisions to determine the procedure for wealth taxation;
- c) other countries: the rules of domestic law apply (with the deduction of tax paid abroad).
As the administration has stated, the treaty applicable to the ISF does not necessarily apply to the IFI. Therefore, it is necessary to consider the provisions of the specific treaty on a case-by-case basis.
Lawyer of the Bar of Nice
Specialist in banking and financial law
Cabinet BRAHIN Avocats