IFI: What impact on your wealth?

As announced during the presidential campaign, Emmanuel Macron abolished the Solidarity Tax on Fortune (ISF) and replaced it with the Real Estate Tax (IFI). The new taxation now concerns taxpayers' real estate assets and excludes assets previously included in the tax schedule (financial assets, securities).

Entered into force on January 1, 2018, this replacement of the ISF by the IFI represents an important turning point in the French tax plan. With this change in taxation, the most affluent households are now wondering about the investment strategy to adopt to reduce their exposure to the new tax grid.

Decrease in the number of taxpayers subject to the IFI
Despite this tax change, the tax scale remains the same as that of the ISF. In fact, people with property assets whose declared value exceeds € 1.3 million remain affected by this new tax. Set up by the government with the aim of encouraging taxpayers to invest in the economy, this new tax reduces the number of people previously subject to the TFR.

With this modification of the tax scale, many taxpayers come out of the tax: 150,000 in 2018 against 300,000 in 2017. People still affected by the IFI will experience a tax cut because they will no longer taxed only on their property assets. Despite a drop in revenue for the state, the government hopes that this tax change will have repercussions in favor of a recovery of the economy.

Reconsider the organization of your heritage
As for the ISF, the Tax on the Property Fortune remains calculated on the basis of declaration of the inheritance on January 1st. Before changing the distribution of your wealth, it is therefore important that you take into account the different criteria of the tax grid. These elements include:

- 30% reduction on the market value of the principal residence on January 1st

- Possibility of deduction of the mortgage in the calculation of taxable wealth at the IFI

- Taxation of the usufructuary and bare owner on the value of their rights, under certain conditions

What strategy to adopt regarding this tax change?
Depending on your current wealth, the steps you can take to reduce your taxes will vary. In this optimization strategy, it seems favorable to sell part of your real estate assets. Nevertheless, it is important to compare the amount you will have to pay under the IFI regime and any capital gains tax you will have to pay in the event of a real estate sale. Before taking any action, take the time to see which options are most favorable to you.