Who is liable, and on what

A net property wealth of 1 300 000 € triggers the property wealth tax. A net wealth of 1 299 000 € triggers nothing at all. Between the two there is not one cent of difference in real wealth: there is only a valuation, and the valuation is what decides.

A tax on net property wealth

The property wealth tax bears on holdings of real estate, and on nothing else. Securities accounts, unit-linked life policies without property exposure, cash balances and shares in trading companies do not appear in it. That is what sets it apart from the general wealth tax it replaced.

The triggering event is the position on the first of January. What was sold on the preceding thirty-first of December is out; what will be sold on the second of January remains taxable for the whole year. No pro rata exists, and that rule explains many disposal calendars.

This difference in scope catches people out every year. Two people living together without being married or in a civil partnership file two income returns, but a single threshold test. Add first, compare second: the reverse order leads to concluding wrongly that no tax is due.

What enters the base, and what does not

Taxable items include built and unbuilt property held directly, but also the property share of company holdings. A share in a property investment company is therefore looked at for the real estate it represents, and not for its legal characterisation as a security.

• Built property held directly, whatever use is made of it
• Land, including plots that produce no income at all
• The property share of company holdings, listed or unlisted
• Split ownership rights, the life tenant being in principle taxed on full value

The exemption most useful to self-employed people covers assets used in the business. Premises in which the owner actually carries on their trade leave the base, subject to conditions of use and activity that are checked against the facts, not against a stated intention.

The main home, by contrast, stays in the base but benefits from an allowance on its value at the first of January. That allowance applies to it alone: a second home, even occupied half the year, enters the base at its full value.

The valuation retained is open market value, that is, the price a buyer would have accepted on the first of January. It is supported by comparison with recent sales of similar assets in the same area. An undocumented low valuation is the leading ground for reassessment.

Let-out property deserves a mention. A dwelling occupied by a sitting tenant is worth less than a vacant one, because a buyer cannot take possession straight away. That occupancy discount is accepted, but it has to be quantified and justified asset by asset.

Split ownership follows a simple rule that is often misunderstood: the life tenant in principle declares the asset at its full ownership value, and the bare owner declares nothing. Exceptions exist, in particular for splits arising from an inheritance.

The debts that come off the base

The base is net: debts relating to taxable assets are deducted from their value. They must still exist on the first of January, be personally owed by the taxpayer, and genuinely relate to an asset included within the taxable base.

The outstanding capital of an acquisition loan is deductible, as are works committed but unpaid, or the year's property tax. Taxes that do not bear on real estate, income tax first among them, cannot be deducted at all.

Two restrictions are worth knowing. Loans granted by the taxpayer to themselves through an interposed company are neutralised. And interest-only loans, which do not amortise, are deducted as though they amortised each year, so that they do not reduce the base indefinitely.

For the largest estates, a further mechanism limits the share of debt admitted as a deduction. It targets arrangements where borrowing serves less to fund a purchase than to erase a base, and it applies whatever the taxpayer's good faith may be.