2024 IFI Reform: New Provisions for SCIs

A significant change was made to the 2024 budget law, putting an end to tax optimization strategies applied to real estate held through real estate investment companies (SCIs). 

This tax change is intended to ensure equitable treatment for all households subject to the Real Estate Wealth Tax (IFI).

An amendment introduced into the 2024 budget bill, proposed by four Socialist lawmakers, aims to clarify the rules for calculating the tax base subject to the IFI. Although this tax reform did not make headlines, it may have gone unnoticed by many of the taxpayers affected. This technical change is intended to increase the value of taxable assets, sparking mixed reactions. Until now, real estate acquired through an SCI (real estate investment company) allowed for tax optimization that reduced the value of the properties—a possibility that will be eliminated starting next year. With the application of Article 49.3 in tandem with the 2024 Finance Act, the French Ministry of Finance aims to put an end to this tax optimization, which is primarily used by certain entities such as SCIs or family-owned limited liability companies (SARLs). Until the end of 2023, owners of real estate held through an SCI may deduct debts related to the company in general (and not just to the property), with the exception of debts incurred solely for the purpose of tax optimization. In contrast, individuals may deduct only expenses related to their property (maintenance, loans for the purchase, renovations, condominium fees, local taxes, etc.). The amendment aims to correct this disparity in treatment, in accordance with the principle of uniformity established by the legislature when the IFI was created in 2018.

Toward Fairness Among Taxpayers
 

The purpose of the amendment is to harmonize the rules for all taxpayers subject to the IFI by aligning the regulations governing SCI owners with those governing individuals. If the Senate approves this measure, a uniform system will apply to everyone, with significant consequences for taxpayers who may be affected. Consequently, the value of taxable shares (or stock), as well as debts not directly related to taxable assets and incurred by a company, will no longer be taken into account. In other words, owners of real estate acquired through an SCI will no longer be able to deduct all of their debts, including those incurred by the company. This includes loans taken out by the corporation to acquire a taxable asset held by a partner, as well as the debts of a household member subject to the IFI (or of an entity controlled by members of that household). The IFI 2024 tax return form will be adjusted to reflect this limitation on the consideration of deductible liabilities resulting from the new amendment.