On 1 January 2018, the real estate wealth tax replaced the solidarity tax on wealth, which taxed all tangible and intangible assets such as financial investments, savings, furniture or jewellery that were not exempt. The real estate wealth tax only taxes real estate assets according to a precise scale. If you are subject to the real estate wealth tax, you are probably wondering if your principal residence is also part of the calculation. Here are the answers to the most common questions concerning real estate taxation and the paymentof real estate wealth tax on the principal residence.
Is a principal residence taxable under the real estate wealth tax?
To begin with, it is worth recalling what the term “principal residence” refers to according to thetax administration. The principal residence is defined as the taxpayer’s actual dwelling. In other words, the residence is considered principal when it is occupied by the household for most of the year. It must include the professional and material interests of the family: schools, work, postal address, etc.
Thus, if your real estate assets, including your main residence and other second homes, are worth more than or equal to 1.3 million euros on 1 January of the current year, you are liable for real estate wealth tax.
A 30% reduction of the real estate wealth tax on a principal residence
The main residence, unlike second homes, can benefit from a 30% reduction on its market value. This particularity is a legacy of the solidarity tax on wealth, replaced by the real estate wealth tax in 2018. The tax authorities consider, in fact, that the main residence is a real place of life, it therefore shows benevolence towards it.
There are, however, situations where abatement is not possible, or receives a different treatment. This is particularly the case if you hold a principal residence through an SCI (real estate company). Indeed, this indirect detention is perceived in civil terms as an asset. It is therefore penalized by the real estate wealth tax even if it is a principal residence. Thesame applies if the immovable is in joint ownership, co-ownership or dismemberment.
In addition, your family situation may also treat you differently in the face of this allowance. If you are cohabiting and you and your spouse each own a property subject to real estate wealth tax, the allowance can only apply to one of the two properties.
How to calculate the amount of real estate wealth tax on one’s principal residence?
To calculate the real estate wealth tax on your principal residence, you must first make sure that it is correctly evaluated. To estimate the market value of a property, it is necessary to take into account several criteria that can vary its price:
- the local real estate market;
- the specificities of the housing: area, exposure, number of floors, number of rooms, layout, garden, etc.
- the context of the housing: neighbourhood, reputation, external appearance, etc.
Once the market value has been estimated, you can calculate the tax onthe property according to a precise scale:
- €0 and €800,000: 0%
- €800,000 and €1,300,000: 0.5%
- €1,300,000 and €2,570,000: 0.7%
- €2,570,000 and €5,000,000: 1%
- €5,000,000 and €10,000,000: 1.25%
- more than €10,000,000: 1.5%
If your net taxable wealth is between 1.3 million and 1.4 million, a discount calculated at 17,500 — (1.25% x amount of taxable net wealth) may be applied. You will then be able to benefit from the 30% reduction provided for the main residents.
The reduction for donations to charitable organizations is, like the allowance, also applicable to the tax on real estate wealth. You can therefore deduct 75% of your payments to French or European organizations, including research organizations or foundations recognized as being of public utility. However, you are limited to €50,000 per year.
Do I have to pay the real estate wealth tax on my principal residence?
If your real estate assets reach a value of1.3 million euros or more, you must pay real estate wealth tax, even on your principal residence. However, you benefit, under certain conditions, from a 30% reduction on its market value.
In order to regularize this tax, it is necessary to make a declaration of the tax on real estate wealth at the same time as the declaration of income tax. Be careful not to undervalue your wealth! The tax administration allows a margin of error of 10%, butprefer a fair assessment to avoid being penalized. Also, do not forget any property in your declaration. An omission would also cost you a penalty, up to 0.2% per month of delay.
In the event of late payment, and without justification to the tax authorities of financial difficulties, the 10% increase in tax will be applied. As in all tax procedures, it is good to surround yourself with professionals in order to carry out a fair valuation of assets, to avoid being penalized by the tax authorities.
What is the difference between a built and unbuilt building?
Built buildings are, by definition, immutable assets. A constructed building is considered to be a building, house, apartment, residence, commercial premises or warehouse. It is always a construction, individual or collective, that it is not possible to move.
Conversely, undeveloped buildings are defined asbare buildings, building land or land under construction.
In all cases, and whether built or not, these buildings are subject to real estate wealth tax and you must declare them to the tax authorities.