The 2024 Finance Law was enacted in France on 29 December 2023. The main measures affecting the taxation of private assets are described below.
This article is aimed at French tax residents.
1. Tighter conditions for deducting company debts when calculating the real estate wealth tax Impôt sur la Fortune Immobilière (IFI)
Hitherto, taxpayers were able to calculate the taxable value of company shares (such as shares in SCIs) by taking into account the value of the property assets held by the company, but also by deducting its debts, regardless of their (whether or not they were to finance the taxable property held by the company). From now on, when calculating the taxable value of company shares, only loans incurred directly or indirectly by the company and relating to a taxable asset will be deductible (CGI Article 973 IV).
This applies not only to companies with their registered office in France, but also to foreign companies holding real estate property in France, subject to the application of international double taxation treaties.
This new anti-abuse measure is likely to have a significant impact on the following example situations:
- Companies holding both real estate and non-real estate assets financed with a bank loan that funded the non-real estate assets => the outstanding capital of the bank loan will no longer be deductible when calculating the net taxable value of the shares;
- SCIs (non-trading property companies) that have made distributions of profits by means of entries in shareholder current accounts => the value of the shareholder current account will no longer be deductible when calculating the taxable value of the shares.
In addition, the tax authorities have also introduced a capping mechanism on the taxable value of shares, designed to preserve the taxpayer's ability to pay tax and prevent them from being taxed on a value higher than the value of the assets they hold.
Broadly speaking, this new measure should encourage taxpayers to be cautious when using companies to hold property indirectly. Some IFI strategies may need to be revised, particularly where a company is used solely to reduce the IFI tax base.
2. Dutreil scheme adjusted
The 2024 Finance Law amends the definition of activities eligible for the Dutreil scheme to exclude a company’s use of a corporate action on its own movable or immovable assets.
At the same time, the tax authorities have secured in law a principle that they were already applying in practice: shares in companies with mixed activity are eligible for the Dutreil scheme provided that their main activity is industrial, commercial, skilled craftwork, agricultural or a liberal profession. This notion of main activity was previously absent from the law, even though tax policies already accepted taking mixed activities into account.
This last amendment should therefore provide greater security for a company with mixed activities whose shares are the subject of a tax-exempt transfer under a Dutreil scheme.
3. Quasi-usufruct..... is (partially) defunct
The ‘quasi-usufruct’ regime applies to the transfer of assets (by gift or inheritance) whose enjoyment (usufruct) is reserved, but whose consumption means it immediately disappears (e.g. sums of money). A usufruct that is thus exercised over assets that are consumable on first use is subject to a specific regime (Article 587 of the Civil Code).
Under this regime, even though the donee receives bare ownership of the assets, the usufruct donor may use the assets they have donated as they see fit, provided the assets are returned to the bare owners on their death.
This obligation of restitution to the bare-owner heirs constitutes a debt deductible from the taxable value of the estate assets passed on to the heirs.
The mechanism is designed to meet two objectives, which at first sight seem contradictory:
- Advance planning for the transfer of assets (civilly and fiscally); AND
- Full disposal of the assets transferred is retained until the donor’s death.
The 2024 Finance Law aims to combat this practice, but only in the case of gifts of sums of money with reservation of usufruct, on the grounds that these arrangements are purely for tax purposes. The Law creates a new article, CGI Article 774 bis, which states that:
- Restitution claims relating to a sum of money on which the deceased had reserved the usufruct are not deductible from the assets of the estate; and
- Inheritance tax is applicable on the value of the money that is to be returned by the estate of the deceased to the bare-owner(s).
This new provision therefore puts an end to the advantageous tax regime for gifts of sums of money with reservation of usufruct. It applies to estates open on or after 29 December 2023, which means that it applies to all gifts made under this mechanism (even those transferred before that date), if the usufructuary was still alive on 29 December 2023.
This provision may affect donors resident in France, as well as foreign-resident donors whose heirs are resident in France (subject to the application of a double taxation treaty on inheritance).
The wording of the new CGI article excludes the following situations:
- Gifts with a quasi-usufruct reservation made on other assets such as transferable securities, and
- Quasi-usufructs relating to the sale price of an asset on which the deceased had reserved the usufruct. Accordingly, if the parties (donees and donor) agree to postpone the usufruct/bare-ownership on the sale price of the asset that was given with reservation of usufruct, the quasi-usufruct on this sale price (and its restitution claim) remains effective for tax purposes.
4. Slight adjustments to the exit tax system (CGI Article 167 bis)
Article 167 bis of the CGI has been modified to ensure that taxpayers who benefit from a suspension of tax on the capital gain assessed on their departure from France (under the exit tax) file an effective tax return.
From now on, in cases where the taxpayer benefits from a definitive exemption of exit tax (end of the 2 or 5 year holding period, return to France, etc.), failure to file this tax return in the year following the occurrence of the event that puts an end to the suspension will result in the suspended exit tax becoming immediately payable (for all transfers of residence abroad from 1 January 2019).
Taxpayers who left France between 3 March 2011 and 31 December 2013 are also entitled to relief from social security contributions (provided certain conditions are met), in the same way as taxpayers who left France on or after 1 January 2014.
5. Miscellaneous measures
In addition to the changes described above, a number of other measures have been adopted:
- Introduction of a temporary deduction of between 60% and 85% of the capital gain on property sold for the construction or renovation of housing in areas of housing shortage.
- Raising the exemption threshold from EUR 300,000 to EUR 500,000 in the event of the sale or gift of a business to an employee.
- Creation of a climate future savings plan (PEAC – Plan d'Epargne Avenir Climat), with similar operating procedures to those of the share savings plan (PEA – Plan d’Epargne en Actions). A PEAC can be opened by any French tax resident aged under 18;
- An amendment concerning furnished tourist accommodation was also voted through ‘by mistake’; it was not intended to be presented as it stood, but was not deleted when the bill was returned to the National Assembly. This amendment reduces the ‘micro’ allowance for unregistered furnished tourist accommodations from 70% to 50%; in addition, the "micro" regime for unregistered furnished tourist accommodations is now only available to taxpayers whose furnished tourist accommodation rental activity does not exceed turnover of EUR 15,000 (previously EUR 188,700). The government's original intention was to tighten up the conditions for all furnished tourist accommodation, not only unregistered accommodation. Various corrective measures have been announced in response to this substantive error.
