How to turn your real estate investment into an anti-IFI strategy through asset stripping?

For owners of substantial properties, property tax (IFI) can be a real tax pain. This significant impediment to your asset growth requires strategic and creative solutions. Fortunately, there are legal mechanisms to mitigate or even circumvent this burden. Asset disposal is one of the most effective keys to the tax defense arsenal at your disposal. With smart implementation, you will not only potentially be able to reduce your tax burden, but you will also have access to a world of rich benefits. The following lines will peel back the veil of this often-overlooked strategy and help you understand its potential for preserving and expanding your real estate legacy.

Understanding IFI and its impact on your real estate assets

Property tax (IFI) has raised many questions among property owners since its introduction. This tax applies to people whose real estate assets exceed 1.3 million euros and can significantly affect the management of their assets. However, there are legal strategies to minimize its impact.

Asset Division: Your Anti-IFI Ally

One of the most effective estate tax planning strategies is estate clearance. This approach consists in dividing ownership into two distinct parts: usufruct and bare ownership. The usufructuary enjoys the property or receives income from it, while the bare owner holds the property. Upon termination of the usufruct (often determined by the death of the usufructuary or after a certain period of time), full ownership automatically reverts to the bare owner.

Tax benefits of distributions

  • Partial or full exemption from IFI: The bare ownership value is exempt from IFI. Only the usufruct is potentially taxed.
  • Simplified transfer: Inheritance taxes can be significantly reduced as the transfer is made based on the value of the bare property.
  • Rental Profitability: If the usufruct is held by a third party (such as a management company), a bare ownership investor can develop the property without having to manage the lease.

Simulation: Impact of partition on IFI

Consider a property worth 2 million euros subject to MFI. Here is a simplified illustration of how the split could affect IFIs:

Situation without dissection The dismemberment situation
Property value €2,000,000 Value of the right of use (70%) €1,400,000
IFI payable X € Bare Ownership Value (30%) €600,000
IFI payable (by usufructuary) €Y
IFI deposited (bare owner) X – Y €

Note: The percentages used for usufruct value and bare ownership value are indicative and may vary depending on the age of the usufruct and the duration of the usufruct.

When to decide on dismemberment of the property?

Property distribution is of particular interest in several situations:

  • When acquiring real estate intended for rent.
  • In case of property transfer for the purpose of reducing the MFI tax base and inheritance tax.
  • When an investor wants to build a property without worrying about rental management.

Conclusion

Transforming your real estate investment into an anti-IFI strategy through asset fragmentation is a solution to consider to optimize your assets. With good planning and the support of a professional, you can not only reduce your tax burden, but also facilitate the transfer of your assets. This is an unmissable opportunity for investors looking to combine long-term wealth growth with immediate tax optimization.

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