What do you want to know?
Why invest in a historic monument?
Investment in a historic monument is recommended for taxpayers who are heavily taxed and / or who are subject to the IFI.
Investing in the Historic Monument Law grants the owner of the building the possibility of deducting the amount of all the restoration work from his overall income, without any cap, as well as the amount of loan interest linked to the acquisition and work.
This deduction is granted even in the absence of property income, since it applies to the overall income base.
Investing in the Historical Monuments Act 2021 therefore consists of acquiring a property requiring major restoration work. The costs of restoration and maintenance of the Historical Monuments property, as well as the interest on loans linked to the acquisition of the property and to the works are deductible at 100% of the property income.
The generated deficit is deductible from the overall income, without any cap.
In addition, after having concluded an agreement with the State, the donation or transmission of this heritage is exempt from inheritance tax.
Invest in an exceptional property & Tax exemption
What is the historical monuments law?
The Historic Monuments law was instituted in 1913 to restore and maintain buildings that are particularly valuable in terms of national heritage.
In this way, the State transfers the safeguarding of a large part of the national heritage to private investors.
The Historic Monuments system allows investors who buy property classified as "Historic Monuments" or registered in the additional inventory of Historic Monuments, with a view to restoring and preserving it, to benefit from a tax reduction. This tax exemption tool is particularly suitable for heavily taxed households.
This system allows the taxpayer to participate in the conservation of French heritage by renovating or rehabilitating goods that have played a role in history.
Although it is often a large investment, the properties classified as "Historic Monuments" are located in tourist areas, or sometimes even city centers, which ensures the owner a certain interest of the public for his property and therefore a significant economic impact.
Thanks to the Historic Monuments tax exemption system, the owner of a listed property can:
charge the charges and the land deficit to the overall income.
deduct insurance premiums.
be exempt from inheritance tax.
Tax domicile & Investment period
The system is reserved for people with their tax domicile in France.
Non-resident taxpayers cannot benefit from the special device for charging charges directly to overall income because the latter cannot make a deduction for charges from global income since the income taxed in France only represents part of those at their disposal (CGI art 164 A).
However, if the building is rented, non-resident taxpayers are entitled to claim the deduction of the property deficit on their other taxable income in France.
To benefit from all the tax advantages linked to the system of historic monuments, the owner must undertake to keep the property for at least 15 years from its acquisition.
The tax benefit will not be called into question in the event of a free transfer (gift or inheritance) if the donees or heirs take over the commitment made by the donor or the deceased.
Deductible charges & capping
Expenses normally deductible from property income under the ordinary law regime.
Repair and maintenance expenses,
Improvement expenses relating to residential premises,
Property tax on built properties,
Loan interest and management costs (remuneration of guards and janitors, procedural costs, management costs),
Insurance premium.
Certain charges specific to historical monuments and similar buildings:
Annual contribution to the service of historic monuments when maintenance is provided directly by the administration (see above)
Charges linked to the opening of the property to the public.
Property charges can only be deducted to the extent that the taxpayer does not request that they be taken into account for the calculation of a reduction or a tax credit for expenses relating to the main dwelling.
Historical and similar monuments that benefit of the specific expense deduction regime do not give entitlement to the Pinel tax reduction.
No accumulation possible with the Malraux device.
Detention
In principle, the building must be owned directly.
Only three exceptions offer the possibility of holding the property through a civil company not subject to corporation tax:
When the company is a family company, that is to say constituted between members of the same family;
When the company has received specific approval or has acquired a building used for housing for at least 75% of its area (acquisition from 2018)
When the building is assigned to a non-commercial cultural space open to the public.
Capitalization & Society
The tax advantage differs depending on whether the property is open to the public or not and whether or not it generates revenue. Here are the possible cases:
The good does not generate any revenue
The owner can then charge:
100% of the expenses related to the works.
50% of the charges if the property is not open to the public.
100% of the charges if the property is open to the public in part or in its entirety.
Note: a building is considered to be open to the public if visitors are admitted at least 50 days a year (including 25 non-working days) between April and September.
Good provides revenue
If the property classified as "Historic Monuments" generates revenue, two scenarios are possible:
The property is open to the public, but is not owner occupied.
The owner can then deduct from the revenue generated by the visits the costs and charges linked to the remuneration of the staff (guard, guides, reception agents, etc.) allowing access to the public.
He may also prefer to deduct without proof a lump sum of € 1,525 (€ 2,290 if the park is also open to the public). In the same way, in the context of the rental of the place, the expenses related to the rental are attributable to the rents.
The property is open to the public and occupied by its owner.
The owner can then deduct 75% of the total land charges from the revenue linked to the opening of the property to the public. The remaining part of the charges, i.e. 25%, is attributable to the owner's overall income.
Note: the percentage reduction depends on your marginal tax rate (TMI).
For this tax exemption system, the tax impact is optimized for the upper tax brackets, in particular those located between 41% and 45%.
Taxation & IFIs
The land charges borne by the owners of historic or similar monuments may be allowed as a deduction either:
in full of the land income provided by the building when it gives rise to the collection of taxable revenue and is not occupied by its owner;
the owner's overall income under the conditions and limits set by articles 41 F to 41 J of appendix III to the CGI, when the building does not provide any income;
part of the property income and part of the overall income, when the building provides income, but is partly occupied by its owner.
Conditional exemption from gift or inheritance tax which may benefiting from historical monuments is not applicable to the IFI. Nevertheless, it is accepted that their assessment takes into account the constraints with which they are burdened, in particular:
Heavy maintenance costs,
resale difficulties,
constraints linked to opening to the public,
constraints linked to use for collective animation purposes for an essentially cultural purpose.
A rental investment in a historic monument makes it possible to deduct without limitation on its overall income the amount of the land deficit generated by the carrying out of work.
Consequently, the revenues to be taken into account for the IFI cap are greatly reduced or even erased.
Definition of historical monument
By historical monument (from a fiscal point of view) we mean:
buildings classified as historical monuments;
buildings listed in the supplementary inventory;
buildings which have received the label issued by the “Heritage Foundation” if this label has been granted following a favorable opinion from the departmental architecture and heritage service;
since January 1, 2015, without compulsory authorization request, buildings classified in whole or in part as historical monuments and which are assigned for at least 15 years to a non-commercial cultural space open to the public;
until January 1, 2014, buildings which are part of the national heritage because of their particular historical or artistic character and which have been approved for this purpose by the Minister of the Economy and Finance.
From that date, these buildings no longer benefit from the exemption regime for historic monuments. Buildings that were approved until December 31, 2013, however, continue to benefit from this regime until the end of the approval granted to them.
Here are the advantages that you can derive from this tax exemption system by renovating your property:
Renovation and maintenance work can be deducted from your income, saving you taxes.
Unlike the Malraux law which imposes a cap on the calculation of the tax advantage granted, the expenses related to renovation work and falling within the framework of the Historic Monuments law are not subject to any limitation.
This device also allows you to deduct your property deficit from your overall income.
Finally, you can benefit from an exemption from inheritance costs, but only in the event of an agreement signed with the Ministry of Culture and Communication.
If you want to fully benefit from the advantages of this 1913 law on Historic Monuments, the renovation work you undertake must meet these two criteria:
They must be the subject of a special work authorization or a declaration of public utility.
They must be carried out on the initiative of the owner or of the owners grouped together in Association Syndicale Libre.
Apart from that, you must make sure that they comply with the requirements of the ABF (Architecte des Bâtiments de France).
Note: The benefit of the regime applicable to owners of historical monuments and the like is subject to their commitment to retain ownership of the buildings for a period of at least 15 years from their acquisition, including when this is prior to January 1, 2009.
You can deduct property charges from your property income or from your overall income, especially when the building does not provide income. Deficits are attributable without limitation on the amount of your overall income.
When the building does not generate any revenue, all of the land charges are deductible from the overall income if the property is open to visitors free of charge. On the other hand, if it is not open to the visit, these charges are deducted for half of their amount. However, the subsidized works as well as the maintenance contributions paid to the administration remain fully deductible (for the part remaining at your expense, that is to say after deduction of the subsidies);
When the building provides taxable income, all of the land charges relating to the building can be deducted from the land income and any deficit is attributable without limits to the overall income. If you occupy the building in part, the charges relating to the part of the building that you occupy are deductible under the same conditions as for buildings not producing income (deduction of total income in full or in half). In addition, you can apply a flat-rate reduction on the total amount of admissions of € 1,525 or € 2,290 (when the château includes a park or garden open to the public).
In addition to expenses traditionally deductible from property income, owners can deduct (from their property income, or failing that from their overall income):
insurance premiums relating to historic monuments open to the public (whether or not they generate income) and movable objects attached to perpetual residence for their actual amount;
promotion and advertising costs for their real amount, provided that the building is effectively open to the public and generates income.
Historic buildings are not exempt from the Real Estate Wealth Tax (IFI) (which replaced the ISF since January 1, 2018). Historical monuments therefore enter the taxable base of the IFI and must be declared in this tax.
However, the tax authorities admit that the constraints resulting from their specificity (often significant works and charges, constraints linked to their opening to the public, difficulties encountered in resale, etc.) are taken into account for their assessment.
Advantages & Disadvantages of the Historic Monuments Act
Monument
Example of use of the Historical Monuments law
1
Initial situation
Gilbert wants to diversify his investments.
Its income amounts to € 75,000 per year. Its IMR is 41%.
It is not subject to the IFI.
2
Investment in a historic monument
He decides to acquire a building classified by the Historic Monuments and leases it to a tourist establishment operator. The acquisition price is € 200,000. Gross rents amount to € 6,000 excluding tax.
He pays fees for an amount of € 30,000, including registration fees and notary fees.
The investment is financed by a final loan at the rate of 2.50% over a period of 15 years.
The loan is backed by a life insurance contract capitalized at the rate of 4.5% which will allow the repayment of the capital at term.
Gilbert opts for the submission of rents to VAT. He will therefore be able to claim reimbursement of the tax which encumbered the work.
3
Determination of net property income for the first year & the following 14 years
Year 1: The deficits noted are fully attributable to Gilbert's overall income. This will save tax for an amount of: € 32,000 x 41% = € 13,120.
Year 2-15: This deficit is fully attributable to Gilbert's overall income who will realize an annual tax saving of: € 2,000 x 41% = € 820.
