Wealth tax and ‘exit tax’: useful considerations

Useful considerations

If you are required to declare French property wealth tax (IFI – impôt sur la fortune immobilière), this is done at the same time as your annual income tax return.

Most French tax residents complete both declarations online via the official tax website, with deadlines typically falling between mid-May and early June, depending on where you live. First-time declarers may still use paper forms, although online filing is encouraged and becomes standard thereafter.

You do not need to send supporting documents with your declaration, but you should retain them for at least four years in case the tax authorities request further information. IFI bills are generally issued in late summer and are payable in September.

What deductions are allowed?

IFI applies primarily to property, but also to certain property-related rights, such as a right to occupy a home. It can also apply, in full or in part, to shares linked to property investments.

When calculating your taxable wealth, you can deduct certain debts that exist as of 1 January of the relevant tax year, provided they relate directly to taxable assets. These may include outstanding mortgage balances and interest, costs linked to building or renovation work, loans used to acquire property-related shares, and certain maintenance costs for rental property. Property taxes such as taxe foncière may also be included.

However, debts linked to exempt assets cannot be deducted. Where assets are only partly taxable, deductions are limited to the same proportion.

Ways of reducing wealth tax

Several mechanisms exist to reduce IFI liability. A discount (décote) applies to those with taxable wealth just above the entry threshold. In addition, a ceiling ensures that the total of income tax and IFI does not exceed 75% of your income.

Donations to eligible charities can reduce the final tax due, and certain types of investment, such as in forests or vineyards, may benefit from partial exemptions.

Which areas pay most wealth tax?

Some 186,000 households received a bill for IFI property wealth tax in 2024, the last year for which a full report was available. Compared to 41 million households assessable for French income tax, that represented about half of one percent. 

Compared to the average tax household in France, those paying IFI draw much more of their income from investments and capital gains: in fact, more so than from work. 

Households paying IFI are found firstly in Paris and the Hauts-de-Seine and Yvelines departments to the west of Paris, followed by Val-de-Marne and Essonne to its south, the Alps – reflecting high prices of ski properties – the Côte d’Azur and the Atlantic coast.

If you move away from France: the exit tax 

Note that if you move back to the UK (or elsewhere) in the future, you may still as a non-resident, be liable for French wealth tax declarations and payments if you retain valuable property holdings in France. 

Some Britons may also be affected by France’s ‘exit tax’.

While this will not apply to most Britons moving to France, it is worth being aware of if your plans include building up a company or significant shareholdings while resident in France.

It is designed to prevent people from building up large, unrealized gains while resident in France and then leaving the country to avoid tax when those gains are eventually realized. In effect, it allows France to lock in the right to tax gains that accrued during French residence, even if the assets are not sold at the time of departure.

The exit tax may apply if:

• you have been tax resident in France for at least six years out of the previous 10, and

• you then transfer your tax residence abroad, and

• you hold substantial shareholdings, typically in companies.

It is aimed at wealthier taxpayers, not ordinary salaried workers.

The tax applies to company shares and similar holdings, not to ordinary income.

It is triggered if, on the day before departure the net value of your shareholdings (or those of your tax household) exceeds €800,000, or you hold more than 50% of the shares of a company, regardless of value.

The tax is based on unrealized capital gains - in other words, gains that exist on paper but have not yet been realized by selling the shares. The gain is calculated as at the day before you leave France.

By default, it is taxed at the 30% flat tax on investment income (12.8% income tax plus 17.2% social charges).

Alternatively, taxpayers may opt for taxation under the ordinary income tax bands, which can be beneficial in some cases, as normal capital-gains allowances (including for length of ownership) then apply.

Crucially, the tax can arise even if the shares are not sold and no cash is received, however in many cases, the tax is not payable immediately.

If you move to another EU or EEA country, or a country that has signed agreements with France to combat tax evasion and allow mutual tax recovery (including the United States) the exit tax is automatically set aside and only becomes payable if the shares are actually sold.

If the shares are not sold within two years of departure (or five years if the relevant shareholdings exceed €2.57 million), the tax is cancelled entirely.

Where tax was paid on departure (for example, when moving to a non-cooperative country), it may be refunded if the shares remain unsold after the same periods.

The tax also does not apply if you move back to France.

The exit tax is generally not payable if shares are given away, although where the recipient lives in a country considered non-cooperative, the authorities may ask for evidence that the gift was not made solely to avoid tax.

A specific exit-tax declaration must be filed in the year following departure, by the usual income-tax deadline.

The declaration sets out the value of the latent gains at the time of departure.

Ongoing reporting may be required until the tax is cancelled or becomes payable.

In general, if you may be affected by this tax, careful planning is important and you may wish to seek professional advice specific to your situation in advance of your move away from France. 

The tax can in some cases be large and the administrative burden complex, especially as it involves valuation of shares which will often be unlisted.