Autumn Bulletin: 2026 Budget Tax Measures

On 14 October 2025, after a very bumpy ride, the French government finally announced its proposed 2026 budget. Unless we have a repeat of the 2025 Budget, this should be voted in before the end of the year. Below are the proposed tax measures which, in the main, represent a bundle of tax hikes.

The 2026 budget is silent when it comes to any inflationary indexation. Therefore, the barème’s income bands and tax thresholds & caps may be frozen, leading to an “organic” and generalised tax hike across all French taxpayers.

Taxes on Wealth

As announced, the Government continues to focus on increasing liabilities for the wealthiest, with the following proposed measures:

a. An extension of the Contribution Différentielle sur les Hauts Revenus (CDHR) introduced in the February 2025 Budget for another year. This extra tax liability affects households with worldwide taxable income over €500,000 (couples) and €250,000 (single), who are already paying the Contribution Exceptionnelle Sur les Hauts Revenus, « CEHR ». The CDHR only affects those whose marginal rate of income tax and CEHR liabilities fall below 20% of their worldwide taxable income. In simple terms, they need to recalculate their liability to bring it up to 20%. Any extra liability is due before 15 December 2025 with a 20% penalty if paid late.

b. Introduction of a new wealth tax levied on assets held through family holdings. This targets assets which have no commercial purpose and are simply “parked” to increase private wealth through untaxed income and gains. This new “Taxe sur les actifs non affectés à une activité opérationnelle des sociétés holdings patrimoniales” would affect holding companies :

liable to corporation tax
holding over €5m in assets.
which have at least one private individual with a 33.33% minimum holding in voting or financial rights or holding controlling powers. Where these rights are held indirectly, the minimum 33.33% holding would be determined by multiplying the holding rights in each interposed entity. The rights held by the individual, their spouse/civil partner or co-dweller, ascendants, descendants and siblings, would be aggregated, representing one individual holding. Similarly, an individual with voting or financial rights under a shareholders’ voting agreement for distribution policies, would be treated as one individual. This minimum holding threshold condition would be deemed fulfilled if the financial or voting rights are held in trust or through an entity registered in a blacklisted territory.
which receive unearned or “passive” income amounting to 50% or more of their total operating & financial income (excluding provisions and depreciation reversals). Typically, this relates to dividends, interest, rents, royalties, and gains on the sale of assets which generate these types of revenues.
which are not controlled by another company subject to this tax.
The tax would also apply to French tax residents who hold rights in holdings situated outside France, effective in respect of accounting periods closing from 31 December 2026.

Broadly speaking, the self-assessed tax would be calculated on the net market value of all the non-operational assets (including property, investments, loans, any other movable property etc.) at a rate of 2%. Certain debts would be deductible but subject to the strict conditions which apply in the context of personal French wealth on immovable assets (Impôt sur la fortune immobilière). A company which holds a life interest, right to income (usufruit) in an asset, would report the full value of that asset for the purposes of the tax.

The taxable value would also include any excess cash reserves by reference to the company’s needs, and the value of any shareholding in companies which own any of the above taxable assets. Assets held via a trust would be treated as owned by the holding company. This measure would be effective in respect of accounting periods closing from 31 December 2025 for French holding companies.

Amendments to Annual Allowance on Pensions

The 10% proportional annual allowance on pensions currently capped at €4,399 per household and the specific allowance for the over 65 or disabled with modest income (see below) would be replaced by a €2,000 allowance per pensioner. In addition, the former means tested allowance of €2,796 for those with a 2024 taxable income up to €17,510 and €1,398 if the taxable is between €17,510 and €28,170, would be reserved for disabled pensioners as an extra allowance. In the absence of any indexation, we would expect these amounts would also apply to 2025 income.

Tax reduction for charitable donations

Donations to qualifying non-profit organisations aimed at supporting disadvantaged people are currently eligible to a 75% tax reduction capped at €1,000 of donations per annum. The budget proposes to increase this limit to €2,000 a year for donations made from 14 October 2025.

Tax Reduction for Children’s Education

The 2026 budget proposes to suppress the tax reductions of €61, €153, and €183 applicable per child depending on their attendance to college, high school, or higher education.

Revised VAT Franchise Thresholds

A revised VAT franchise turnover threshold of €37,500 by reference to the previous tax year and €41,500 for the current year, would apply to all activities (including furnished lettings which offer hotel-like services). However, building trade activities would be subject to thresholds of €25,000 and €27,500 respectively. The pre-reform higher turnover thresholds would continue to apply for sales of goods and services which took place between 1 March and 31 December 2025.

Incorrect Tax Reporting - What is the Margin of Error?

In most cases, the French tax system accepts that errors can be made in good faith and may show leniency. An honest mistake within a 5% margin of the corrected taxable income, should simply result in the payment of the extra tax due, without any penalties or interest. Over that 5% tolerance margin, the oversight will trigger penalties and interest due on any extra liability. However, erroneous amendments to any income figures pre-filled on a return, can lead to a hefty 40% penalty even if within the 5% tolerance threshold.

The outcome of any tax audit is unpredictable and depends on circumstances. Taxpayers may claim penalty reductions if their good faith is not brought into question or when they have rectified any errors spontaneously.

From September to 3 December, taxpayers can rectify the online return they submitted in the Spring. This allows a safe space to make any corrections they may have identified upon the review of their income tax assessment.

“Impatrié” Regime – Relaxation of the Rules

The impatrié regime is a favourable tax package for those coming to work in France under certain strict conditions:

a. The employee must be "recruited by a company" operating in France, which has links with the company of origin established abroad [intra-group mobility] or

b. The employee is directly recruited abroad for a position in a company in France [external hire].

This excludes anyone who comes to work in France on their own initiative or who has already established their domicile in France at the time of recruitment.

Nevertheless, the regime was recently amended to include employees recruited after having applied, from abroad, for a job offer with a view to holding positions in a company established in France. These individuals are now considered as having been directly recruited from abroad by the French company.

French Furnished Lettings

Further updates to the treatment of French furnished lettings are available on our website.

Monitoring the Value of your French Property

There are many reasons why it is important to keep track of your property’s market value. Indeed, if this is anywhere near the French wealth tax trigger value of €1.3M, it is important to monitor the situation. Wealth tax return omissions may lead to tax audits up to 6 years in arrears and hefty penalties.

The value is also useful when planning to make a lifetime gift of the property or to estimate exposure to French inheritance tax.

The free online service “demande de valeurs foncières” available on impot.gouv.fr offers a useful and comprehensive database of property transactions in the last five years in almost all the French regions, via an interactive map. The site provides:

The sale price and the transaction date of properties or land and farms,
Property description: type, number of rooms and surface area.
The median selling price per m2 by region and city.

The data compiled from notarial deeds and records from the cadastre is updated every six months, in April and October. This service is not yet available for properties situated in the Bas-Rhin, Haut-Rhin, Moselle and Mayotte.