French Property Wealth Tax: How to value your property?
The latest iteration of the French wealth tax in France, L’impot sur la fortune immobiliere (IFI) came in force in December last year focussing this tax on net property assets only and excluding financial assets from the overall French wealth tax calculation. This tax will generate far more that the predicted 850M initially. French sources suggest 1.2BN this year and 1.5Bn in 2019! Good work it seems from Monsieur Macron.
The main reason for this increase is that property owners are increasingly likely to reevaluate the declared value of the property which will lead to the tax windfall. The main driver for this comes from the upcoming anti-fraud law due to be passed in 2019 which will penalise owners for undervaluation of their property to reduce their tax bill.
What are the main ways to value a property in France?
The main and preferred method to value a property is the comparison method which establishes the market value by looking at recent sales of similar properties in the area local to the property. For buy to let properties, the rental yield can also point to a value for the market value by looking at what the property is renting and taking the average yield from similar properties and extrapolating the price at which a property could be sold in this manner.
A simple valuation of the property costs in the region of €1000 to €2000 depending on the purpose of the valuation. The survey is usually undertaken by chartered real estate professional in France who could be either an estate agent, surveyor or even a Notaire, though it is important to note that a professional valuation is not required for the wealth tax declaration. It is possible to simply ask an estate agent for a report on value which can usually be procured without payment.
What allowances are made?
It is normal practice for properties held in either SCIs or SARLs to benefit from a reduction of 10-15% in the value of the property as the property is deemed to be slightly less liquid. It is important to check your declaration and any reductions with a tax specialist.
What are the potential risks?
If an error in the valuation is found during a check of the property by the tax authorities then the size of the gap will be important. Less than 10% and all should be fine, more than 10% and penalties can be imposed not only for the year in question but the previous three years. In addition to late fees, a further penalty of 40% to 80% of the amount of tax which is being recovered may also be levied. If you have failed to declare the property at all, then the sanctions can be even greater with the tax authorities going back 6 years and the likely additional penalty being nearer the 80% mark especially in cases where bad faith can be established.