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Discover the 2024 reform on real estate wealth tax (IFI) impacting SCI-held properties, changing debt deductions and tax calculations.
Since 2018, taxpayers whose net taxable real estate assets exceed 1.3 million euros are subject to the IFI, real estate wealth tax, which replaced the ISF, wealth tax
However, in 2024, an amendment to the finance bill will change the rules for calculating the IFI for real estate held via real estate companies (SCI).
The SCI is a legal form that allows several people to hold and manage real estate together, by dividing up shares proportional to their contributions
The reform of the IFI for the year 2024 is an important reform. It removes or considerably reduces the advantages of the SCI, as a form of holding real estate assets regarding the IFI.
Indeed, Article 3 duovicies of the Finance Bill for 2024 proposes to modify the rules for calculating the IFI, to ensure equal treatment between taxpayers, whether they hold their real estate directly or through a company.
This amendment aims to ensure the uniform application of the deduction of debts:
- For the valuation of company shares as well as for that of buildings
- Whether the property is owned directly or indirectly.
As a reminder, the basis of assessment for real estate wealth tax is the net value of the assets or shares to the fraction of their value representing real estate assets or rights held directly or indirectly by the company.
The assets are held directly, such as by an acquisition in one’s own name of a house for example, or in the name of the company.
Debts relating to the property, such as acquisition, conservation or improvement, can be considered to reduce the taxable base. The legislator wants that for the valuation of shares, only the debt relating to a taxable property can be considered. The company’s other debts will no longer be considered for the valuation of the shares, thus determining the tax base
The risk of not deducting real estate-related debts is that the valuation of the securities could exceed the value of the company's assets.
However, Article 3 duovicies also provides for a protection measure for taxpayers, so that this amendment does not penalise them. It provides that the value of the units or shares subject to IFI may not exceed the market value of these units or shares, i.e. the value they would have on the market
The reform of the IFI calls into question the advantages of the SCI and encourages taxpayers to look for different solutions.
We will discuss these possibilities in another post.
