Emmanuel Macron, President of the French Republic, intents to turn the actual wealth tax system into a “tax on real estate annuity” as stated.
Real estate is indeed taking over an important place in the assets of the French nationals. According to French National Institute of Statistics and Economic Studies “INSEE”, around 63% of French households own real estate properties. In 2016, French wealth tax “Impôt de solidarité sur la fortune” had applied to over 343,000 taxpayers and had contributed over 5 billion of French tax revenues.
The idea is to exclude of the French wealth tax scope, financial investments, savings (life-insurance included) and other securities in order to only subject taxpayers owning real estate properties. This exclusion would lead to a tax loss of circa 2 billion euros for the French tax authorities, and would be justified by the fact that wealth tax should not further be amended on assets “financing the real economy”.
Introducing a tax on the only real estate properties implies that these investments don’t contribute to the economy growth. However, statistics show that the said investments constitute a credible deterrent to growth and employment in the housing and construction field and generate 60 billion euros tax revenue per year.
The underlying question is to know what “real estate properties” notion would cover, and more specifically what would be the qualification of shares of French real estate companies (“société à prépondérance immobilière”). Even though the shares of these companies are considered as securities, they are likely to be included in the real estate properties qualification. Another question that could be raised is the potential increase of the wealth tax progressive scale in order to compensate the tax loss revenue generated from the new scope of French wealth tax.
Prior considering an increase of wealth taxes on real estate assets, it is worth mentioning that France is already one of the European state with the highest tax pressure on real estate. For example, income tax exemption on the sale of real estate properties would benefit to taxpayers after twenty-two years of ownership, versus ten years in Germany, and five years in Italy.
Considering that wealth tax levy will be maintained on real estate assets, to say nothing of a possible increase, we advocate for a decrease of the so-called transfer rights’ rates (“notaries charges”). It would still be a positive sign for (future) owners or investors in the real estate properties. Such decrease (combined with a maintenance of low interests’ rates) would be directly profitable to French tax Budget, due to the increase of the volume of transactions. We would thus plead for both tax real estate properties and investments tax a clear and stable counter-shock as from the upcoming French Tax Finance Act.