How to take property out of IFI

Give it away to family members

One way of reducing property wealth assessable to IFI is by giving it to your family. 

For example, a French resident can legally give €100,000 to each of his or her children without any gift tax being payable and this is renewable every 15 years. The sum is €31,865 for grandparents to grandchildren.

Such gifts can be made up of real estate, investments etc. It can also be in addition to the ‘family gift’ of money (cash, cheque, transfer...) of up to €31,865 every 15 years permitted from someone aged under 80 to each adult child or grandchild.

You should note though that under French inheritance law, lifetime gifts to children should not be to the detriment of the ‘reserved’ inheritance rights of any other children you have.

If in doubt on this it is advisable to consult a professional such as a notaire. 

Until 2021, foreign people could avoid this issue by making wills stipulating that they fall under the inheritance law of their nationality, according to an EU regulation (assuming their own national law is flexible on this point). However, a 2021 French law has cast doubt over this.

A temporary donation of usufruit

One gift option for reducing your declarable property wealth is a temporary donation of usufruit – that is the use and benefit of a home or investment (eg. the right to receive rent or income), for example to a young relative, for a set period via a notarised gift. This should be for at least three years.

This takes the item out of your declarable possessions for IFI and completely out of the tax unless the person to whom you give it also has to declare it. The person must not be part of your foyer fiscal in this case.

In terms of gift tax (a separate issue to IFI), the value of the gift is equal to 23% of the full value of the item for each 10- year period (or part of one) for which it is gifted.

To avoid any contestation from the tax office, it is best if you can show that the recipient needed the income – as opposed to it being transparently done to reduce your IFI) – for example a student needing help with maintenance costs.

It is also possible to make such a gift of temporary usufruit to a charitable association.

Invest in nue-propriété

You may keep a property out of the IFI assessment by the purchase of the nue-propriété only, which is offered by certain property investment companies (acquisition en nue-propriété).

The usufruit – the legal right to use the property – is owned by, for example, a housing association, which rents the property to a tenant.

During the arrangement, which is usually for at least 15 years, the property is not counted for IFI.

Become a professional letter

If you have significant income from rental properties you might want to look at the status of loueur en meublé professionnel (professional letter of furnished accommodation).

This is for people with rental income of at least €23,000/year and whose other ‘professional’ income is less than the income from letting. Because the property is seen as a ‘tool of your

trade’ it is then not part of your wealth for IFI. You need to register as a business with the chamber of commerce.

Review your assurance vie contracts

If some of your money placed in assurance vie is invested in property-related schemes such as an SCI, SCPI or OPCI or in stock-exchange listed property shares, you could arrange to take your money out of these and put it into something else that is not taxable to IFI.

Sell some property

If you want to lighten your IFI bill or avoid paying it at all, consider selling property investments, such as a buy-to-let property, and put the money into something else, for example a suitable assurance vie policy or investing in the stock exchange.

However, bear in mind that capital gains tax is likely to be payable unless you have owned the property for 22 full years, and social charges unless you have owned it for 30.