Real Estate Wealth Tax: How to Reduce Your IFI Bill
The French real estate wealth tax (IFI) has been in force since January 1st, 2018. It applies to taxpayers whose net real estate assets exceed €1.3 million, a threshold quickly reached when owning high-end real estate in Paris or luxury properties abroad.
The taxable base includes all real estate assets held directly or indirectly, both in France and internationally. However, several legal strategies exist to reduce the IFI burden while optimizing the management of a luxury property portfolio.
Selling to Diversify and Reduce IFI Exposure
One of the most effective options is to reduce the share of real estate within your overall wealth. Having your luxury properties professionally appraised allows you to identify which assets to sell while anticipating capital gains tax.
The proceeds can then be reinvested in IFI-exempt assets, such as:
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financial investments,
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works of art,
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jewelry,
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luxury watches.
For investors wishing to remain in real estate, credit-financed SCPI investments offer an attractive alternative. While SCPI income is taxable as property income, financing through credit allows the deduction of interest and related costs, significantly reducing tax pressure.
Investing in Low or IFI-Exempt Real Estate
Some real estate assets benefit from a 75% IFI exemption, including:
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vineyards,
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forests,
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agricultural land.
Another powerful strategy is purchasing property in bare ownership (nue-propriété). This allows investors to acquire real estate at a discounted price while benefiting from full IFI exemption throughout the dismemberment period, usually between 15 and 20 years.
Professional furnished rental status (LMP) also allows investors to hold real estate assets outside the IFI scope, provided annual rental income exceeds €23,000 and represents more than 50% of household professional income.
Reducing IFI Through Donations
A temporary usufruct donation is an effective short-term solution. By transferring usufruct rights to a less wealthy relative, the property is removed from the taxable base. Once the donation period ends, the asset returns to the donor’s estate.
Finally, anticipating wealth transmission through donations, particularly to children, allows investors to permanently remove assets from the IFI base while optimizing inheritance planning.
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