Tax exemption in 2024: how to optimize your assets and reduce your taxes?
What is tax exemption?
Tax exemption is a set of legal mechanisms allowing individuals and businesses to reduce their tax burden. Depending on the asset situation, there are numerous solutions to obtain financial tax exemption. It includes various measures that aim to promote rental investment, to optimize the asset management or to support specific sectors of the economy.
Other solutions exist thanks to the various mechanisms put in place by the State to direct your savings. Traditional savings products, investment, tax exemption in SMEs or even alternative investments, the choice is wide.
In this article, we will discuss the main tax exemption solutions available to French taxpayers in order to help you choose the one that best fits your needs.
Real estate tax exemption schemes
Investing in real estate is one of the most common strategies for benefiting from tax exemption schemes. Several laws are in place to encouragereal estate investment and allow investors to reduce their income taxes while building real estate assets.
The Pinel law
The Pinel law offers an income tax reduction to individuals who buy new housing for rent, under certain conditions. The amount of this reduction depends on the duration of the rental commitment, which can be up to 21% of the purchase price of the property spread over 12 years. The Pinel system is open to individual investors, but also to companies and land groups. It is important to note that the minimum investment period to benefit from the fiscal advantages of the Pinel system is 6 years.
In addition, it is also necessary that the home meets certain energy standards and is located in an eligible geographical area.
Non-professional furnished rentals (LMNP)
When you invest in rental real estate, you are taxed on property income by default. Rental income is taxed at the marginal tax bracket (IMR from 0% to 45%), plus 17.20% social security contributions (after a 30% lump-sum allowance or actual costs, as you choose). So we can go up to more than 50% of taxes on this rental income... It's violent, especially from the TMI 30%. It is therefore essential to optimize the taxation of these investments.
The device Non-professional furnished renter (LMNP) is therefore an excellent solution to consider. The LMNP allows you tobuy real estate, furnish it and rent it to tenants. This system has many tax advantages and allows you to be taxed in the category of BIC.
In this case, rental income is taxed after a lump-sum allowance of 50% (instead of 30%). Even better, by opting for real costs, it is possible to amortize the price of the property on an accounting basis and to arrive at a tax income of 0€, even if we have a Cashflow positive, or 0€ tax on rental income.
In addition, the LMNP is compatible with other tax exemption systems such as the Pinel law for even more savings. On the other hand, the device Censi-Bouvard ended in 2023 and can no longer be used. By investing in furnished real estate and choosing LMNP status, you optimize your assets while reducing your taxation in a simple and effective way.
The Denormandie device
The Denormandie device is an interesting option to consider. This system aims to encourage investment in old real estate by offering tax cuts to investors who renovate a home to rent it out. Thus, by buying and renovating real estate with the Denormandie system, you can reduce your taxes while contributing to the improvement of the French real estate stock and developing your assets.
The Malraux device
The Malraux law concerns investors who wish to restore real estate located in a protected area or an area for the protection of architectural, urban and landscape heritage (ZPPAUP). This law makes it possible to obtain a tax reduction of up to 30% of the expenses incurred for the restoration of the property, up to a limit of 400,000 euros over 4 years.
Investing in SCPI
We can invest in By-owned SCPI : purchase at a discount, no income temporarily, so no taxes. The longer the period of bare ownership, the greater the discount. If you don't need immediate passive income, that's ideal.
Alternatively, you can also invest in SCPIs with real estate abroad. Rents will be taxed less (e.g. Germany).
The land deficit
The land deficit is an interesting tax exemption solution for owners of old rental properties in need of work. The aim is to deduct the expenses related to this work from land revenue of the owner, which contributes to reducing his income tax. The amount of the deductible deficit is capped at 10,700 euros per year.
Financial tax exemption schemes
Tax exemption is not limited to real estate investments. Indeed, several solutions exist to optimize the management of your financial assets and benefit from tax advantages.
The default envelope for Investing in the stock market, it's the ordinary securities account (CTO). Brokers like Trade Republic or DeGiro offer it. In this case, it is the Flat tax of 30% which applies every year to realized capital gains and dividends. You don't pay taxes on unrealized capital gains.
To optimize fiscally, it is necessary to give priority to capitalizing envelopes : Even if you make purchases/sales with added value or if you receive income, you are not taxed as long as these amounts remain in the envelope.
In practice: the PEA And thelife insurance are capitalizing envelopes, the 2 most beautiful French tax niches for savers. Knowing that one can very well invest in international companies on life insurance and PEA: ETF (S&P 500, World, Nasdaq...) or actions. Life insurance even allows you to house US shares if you want to have fun doing Stock picking.
Life insurance
Life insurance Is a financial investment which offers advantageous taxation for the transmission of its assets. Indeed, the amounts paid into a life insurance contract are exempt from inheritance tax within certain limits, depending on the age of the policyholder at the time of the payments. No taxes until you withdraw money from life insurance. If you leave after 8 years, you have the option of being exempt from income tax on capital gains (annual allowance threshold up to 9200€ for a couple).
The Stock Savings Plan (PEA)
The PEA Is a savings product which allows you to make investments in shares while taking advantage of advantageous taxation. A complementary product to life insurance, capital gains and dividends are exempt from income tax in the absence of withdrawal from the contract for 5 years. They will be subject to social security contributions of 17.2%. Unlike life insurance, only one PEA can be held by the taxpayer.
Withdrawing from a 5-year-old PEA without closing the account is possible.
The investment ceiling is €150,000 for a classic PEA, double for a couple. However, any repurchase or transfer of shares before 8 years ends the PEA.
Retirement savings (PER)
The PER (Retirement Savings Plan) was implemented in October 2019 with the PACTE law and replaces all old pension plans.
Insurantial PER works like life insurance. We choose to invest in free or managed management, in euro funds (guaranteed capital but low return) or in units of account. The range of assets offered is very broad (equity funds, real estate, etc.).
Good to know: Fees charged by funds other than ETF can be very high, and will ruin your performance. Finary users save an average of over €150K in fees over 30 years thanks to our exclusive analysis.
Fiscally, it is an airtight envelope like life insurance: the capital gains made do not generate taxation until you leave the envelope. The advantage that sets it apart from life insurance: payments are deductible from taxable income.
example: If you pay €5,000 into your PER with a TMI at 30%, we get €5,000 less in taxable income. In other words, we save €1,500 in income tax. There are numerous rules that govern these benefits, in particular on annual payment limits.
The defect of the PER is its lack of flexibility: you cannot only get out of it in retirement or in a few defined cases (purchase of a main residence or a life accident).
Tax exemption schemes linked to entrepreneurship
The creation and development of businesses are also encouraged by various fiscal arrangements for investors. Often more attractive. They have the advantage of being less sensitive in the event of a financial crisis on the markets and appeal to individuals who are passionate about the forest, the vine, the cinema or who want to finance a project that is close to their heart.
The tax reduction for subscribing to SME capital
This type of tax-exempt investment is now available to everyone thanks to internet crowdfunding platforms. You can thus choose the SME you are interested in.
By subscribing directly to the capital of an SME, the tax advantage is a reduction in income tax of 18% of the amount invested, provided you keep the shares for 5 years, capped at 50,000 euros for a single person or 100,000 euros for a couple. This measure aims to support the financing of French and European SMEs while offering tax advantages to investors.
The Madelin device
The Madelin device allows self-employed persons (TNS) to deduct contributions paid under a supplementary pension or pension contract from their professional income. This system aims to encourage the retirement savings of the self-employed and to guarantee them optimal social protection.
Mutual funds for investment in innovation (FCPI)
In addition to investing to exempt taxes, you will contribute to develop SMEs and PMI, without entering into capital, which is more secure. The tax reduction is 18% of the amounts invested provided that 70% of the funds are invested in innovative SMEs and SMIs and that the commitment lasts for a minimum of 5 years.
The investment ceiling is €12,000 for a single person and €24,000 for a couple.
To combine tax deductions, taxpayers can both invest in a FCPI and in a Local Investment Fund (FIP).
Note a 30% reduction for FIP Corse and Overseas investments.
In addition to the tax reduction, this tax exemption investment will allow you to benefit from a total exemption from capital gains tax.
Exemption from taxation of forests and vineyards
Investing in a forest or a winery is another of the possible tax exemption products thanks to Land Groups : GFF (Forest Land Group) and GFV (Vineyard Land Group). They work like SCIs. You acquire the capital of a company that owns forests or wine plots and you receive a return, depending on your investment.
The reducibility limit is €50,000 for a single person and double for a couple.
You will be able to get the following benefits:
- 18% tax reduction
- total or partial exemption from IFI
- in the context of an inheritance or a donation, 75% reduction on the value transmitted.
The initial investment is high, this tax exemption investment is reserved for enthusiasts and must be considered over the long term.
The Girardin industrial device
The Girardin industrial device allows French taxpayers to benefit from a reduction in income tax by financing industrial projects overseas. Eligible investments are capped at 40,000 euros per year and are eligible for a tax reduction of up to 44,831 euros.
Sofica, investing in cinema to reduce taxes
If you are passionate about the seventh art, invest in tax exemption in a Sofica (Company for the Financing of the Film and Audiovisual Industry) allows a tax reduction of 30% on the amounts invested, which can go up to 48% depending on SOFICA's field of expertise.
Tax exemption investment in SOFICA is capped at €18,000 per year. The tax reduction can be significant, especially in the case of increased rates, but the return is generally low.
This tax exemption product based on the success of the films produced presents significant risks. The interest is rather the immediate tax reduction than the Net asset value.
Sponsorship (company and individual) to get tax exemptions
As with a donation, a 66% reduction in the amount of your income tax is possible, up to a limit of 20% of taxable income. The rate increases to 75% when the amounts paid are intended for non-profit organizations.
Donations can be in cash, in kind, in the form of contributions of materials or skills. The recipient company will aim to support various fields such as research, culture, the environment. The ceiling is €50,000.
If it is a corporate sponsor, the reduction on corporate tax will be 60% of the amounts within the limit of 5% of the annual turnover.
Sponsorship
Unlike sponsorship, which is considered a philanthropic activity, sponsoring is an advertising operation. You can deduct 66% of the amounts paid from your income tax by sponsoring a company, an association or an individual. The limit is 20% of taxable income.
Other tax exemption schemes
In addition to the solutions presented above, there are other mechanisms to benefit from tax advantages, in particular in the context of sponsorship or philanthropy.
The tax reduction for donations to associations
Individuals who donate to associations or foundations recognized as being of public utility can deduct 66% of the amount of their donations from their income tax, up to a limit of 20% of their taxable income. A 75% tax reduction is also possible for donations to certain organizations that help people in difficulty.
Buying works of art and musical instruments
The tax reduction for the purchase of works of art and instruments of music is intended for businesses subject to corporate tax and individual entrepreneurs subject to income tax in the BIC category. The works concerned are those that are original, entirely made by the artist and that correspond to certain categories of art. Businesses that buy works for resale cannot benefit from this deduction.
To benefit from the deduction, the company must in particular lend the musical instrument free of charge to performers who request ite, Expose the work in a place accessible to the public free of charge or to employees for 5 years and comply with certain accounting obligations.
The deduction applies by registering the work or instrument inImmobilization in company accounting and by allocating the amount of tax deductions to a special reserve account.
The tax deduction may be called into question if the company does not meet the required conditions, such as exhibiting the work to the public, lending the instrument to performers or accounting obligations. It is therefore important to respect the rules in order to benefit from this tax advantage and to support artistic creation.
In conclusion, it is by optimizing both your investments AND taxation that you get the best net performance. Net performance is what you get after taxes are paid: gross performance - taxes = net performance.
To perfect everything, you can also improve your quality of life by optimizing taxes. Thus, employing an employee at home (including childcare) grants a 50% tax credit.
If you want to go further, watch the Finary Talk with Nicolas Decaudain.
https://www.youtube.com/watch?v=GK2cCk8-TUw
What can be tax exempt? Tax exemption concerns all individuals living in France and subject to taxation. Contrary to popular belief, tax exemption mechanisms are not exclusively intended for more fortunate people. In reality, it is recommended to study these options starting from a tax amount of 2,500 euros.
How does tax exemption work? Tax exemption is a mechanism that allows reduce your taxes by making certain investments or by making certain expenses. By doing these actions, you benefit from tax advantages granted by the State to encourage specific behaviors, such as investing in real estate, supporting businesses or carrying out energy-saving work. Thus, tax exemption makes it possible to pay less taxes while contributing to economic and social development.
