IFI and Debt Deduction: When the anti-abuse clause does not apply
The Real Estate Wealth Tax (IFI) hits the value of your real estate assets. But how to evaluate this wealth when it is held through real estate civil companies (SCI) and these companies have debts? A recent decision of the Court of Compiègne provides important clarifications on the limits of the anti-abuse clause.
The principle: deduction of debts
When you hold units of SCI, you are taxed at the IFI on thefraction of the value of these shares that represents real estate. It makes sense: IFI targets real estate, not the company's other assets.
To calculate this value, you can take into account thedebts related to buildingsCharge it fully before first use.
- Bank loans taken out for the acquisition
- Debts for conservation or maintenance work
- Current accounts of associates related to the financing of property
These debts will reduce the taxable value of your shares. Less value = less IFI.
The anti-abuse clause: beware of debts between partners
The legislator has provided a safeguard: theanti-abuse clause. It aims to prevent assemblies whose main objective would be to artificially reduce the IFI.
Under this clause, certain debts are automatically excluded from the calculation:
- liabilities incurredbetween the company and the debtoras a Share of
- Debts contracted withmembers of his tax household
Unless the taxpayer demonstrates that these debts have notnot contracted for tax purposesvibration.
In other words, if you have lent money to your SCI via a partner current account, the administration may refuse to deduct this debt for the calculation of the IFI.
The case before the court: a disputed family transmission
In this case, a couple had implemented a classic wealth strategy:
- CONSTITUTION OFtwo SCIs
- Acquisition of buildings financed bybank loanandcurrent account contributions
- INTER VIVOS SETTLEMENTshares for the benefit of their children
During an audit, the tax administration disputed the deduction of debts related to shareholders' current accounts. His argument: editing pursued aprimarily tax objective, in particular because of the time lag between acquisitions and donation.
For the administration, the transactions were aimed at artificially inflating debts to reduce the value of the shares at the time of donation, while retaining a tax advantage to the IFI.
The court's decision: anti-abuse clause rejected
The court agreed with the taxpayers. The judges held that:
The arrangement is part of a coherent heritage strategy
The constitution of SCI and the transmission to children meet legitimate objectives of management and transmission of family assets. This is not an "artificial" arrangement created solely for tax reasons.
The chronology of operations is justified
The discrepancy between acquisitions and donation is not suspicious. It can be explained by practical reasons: waiting for the stabilization of the financial situation, the age of the children, the acquisition opportunities...
The tax advantage remains marginal
The judges noted that the tax savings obtained remainedmarginalin relation to the whole operation. This was not the main purpose of editing.
Lessons learned
The anti-abuse clause is not automatic
Just because debts exist between partners and company, they will not automatically be excluded. The administration must demonstrate that the arrangement has a mainly fiscal purpose.
Asset Consistency Matters
The judges look at whether the operations are part of aoverall heritage logic. A well-structured and consistent family transmission strategy will be more readily accepted.
The proportionality of the tax benefit is examined
A marginal tax advantage is not sufficient to characterize abuse. Conversely, an advantage disproportionate to the economic reality of the operation will be suspect.
Take away
- Debts related to buildings held through SCI may bededucedfor the calculation of the IFI
- Theanti-abuse clausemay exclude debts incurred between the company and its partners
- This clause does not apply if the taxpayer demonstrates the absence ofprimarily tax purpose
- A strategy ofcoherent inheritance transmissionescapes the anti-abuse clause
- Themarginalof the tax benefit is an argument in favour of the taxpayer