Foreigners often focus primarily on France’s wealth tax on real estate (IFI) when buying property. However, a more significant long-term tax concern is commonly overlooked.
While considering IFI is important, it is just one aspect of the overall tax landscape that non-resident owners face. Understanding other major exposures is equally crucial.
The IFI: A Necessary but Often Overemphasised Consideration
The IFI applies to individuals whose net taxable French real estate assets exceed €1.3 million, with progressive rates ranging from 0.5% to 1.5%. For non-residents, only French-situs real estate is subject to this tax. Qualifying debt relating to the property may reduce the taxable base, subject to specific limitations.
To illustrate, for a secondary home valued at €2 million owned by a non-tax resident, the IFI could result in an annual tax charge of approximately €7,400, assuming no qualifying debt.
In many cases, the annual IFI due remains moderate, particularly when measured against the underlying asset value or the costs associated with complex tax-mitigation structures.
The significance of the IFI—and the range of available planning options—depends substantially on the buyer’s tax residence and the intended use of the property. After examining the impact and planning factors for IFI, it is crucial to turn to another major, yet less visible, tax consideration for international buyers.
The Hidden Exposure: French Inheritance Tax
For most international buyers, French inheritance tax represents the principal long-term exposure associated with French real estate ownership—one that warrants careful attention from the outset of any acquisition.
French inheritance tax rates can reach 45% for direct-line transfers and apply to French-situs real estate irrespective of the owner’s nationality or residence. The ultimate tax outcome depends on multiple factors, including the deceased’s tax residence, family composition, and the manner in which the property is held and utilized.
Ownership structures that appear efficient during the owner’s lifetime may cause substantial and unanticipated tax liabilities upon death if succession planning has not been properly integrated into the initial structuring.
Why Cross-Border Planning Is Essential
French inheritance tax must be analysed within a wider context that includes:
- The buyer’s tax residence,
- The intended use of the property (primary or secondary residence),
- Applicable Inheritance/Estate Tax Treaties, where relevant,
- The relationship between French succession tax rules and those of the buyer’s home jurisdiction.
Treaties—such as the France–United States Estate and Gift Tax Treaty of November 24, 1978, among others—can materially affect the outcome, but only when combined with appropriate structuring and detailed analysis.
Strategic Ownership Structuring
The ownership structure chosen at the time of acquisition is often decisive.
Holding French real estate through a French civil real estate company (SCI), combined with bank financing or shareholder current account advances, can greatly affect both IFI exposure during lifetime and inheritance tax treatment upon death. The effectiveness of such structures will depend on the buyer’s tax residence, family objectives, and long-term plans for the property.
When properly designed, these structures can allow efficient wealth transmission and asset continuity. When poorly designed, they can cause lasting tax inefficiencies.
The Bottom Line
For international buyers, IFI should be viewed as a secondary consideration rather than the cornerstone of French real estate planning.
The primary focus should instead be directed toward inheritance tax exposure, cross-border succession planning, tax residence considerations, and the intended use of the property—all of which require a tailored, comprehensive approach.
This level of strategic analysis spans well beyond any single tax consideration and stresses the value of consulting knowledgeable private client counsel at the earliest stages of acquisition planning.