MiraClair Wealth

Following a prolonged period of political uncertainty, the French government has now formally enacted the 2026 budget using constitutional powers. While no radical restructuring of the tax system has occurred, several targeted measures have been introduced that directly affect expatriates living in France.

The most important confirmed change is an increase in social charges on certain forms of investment income, reinforcing the importance of proper structuring of pensions and investments.

This update explains what has changed, who is affected, and what this means for MiraClair Wealth clients.

Key Summary

• Social charges have increased from 17.2% to 18.6% on most investment income

• Assurance Vie remains unaffected by this increase

• UK government service pensions remain effectively exempt from French taxation via a tax credit mechanism

• S1 holders may benefit from reduced social charges of 7.5% on investment income

• The flat income tax rate of 12.8% may increase to 20% for higher earners under extended CDHR rules

• Wealth tax (IFI) remains limited to property assets, with a six-year exemption for non-French property

• Proper structuring is now even more important to maintain tax efficiency

1. Social Charges Increased to 18.6% on Investment Income

The most significant change is the increase in the Contribution Sociale Généralisée (CSG), resulting in total social charges rising from:

17.2% → 18.6%

This applies primarily to investment income and capital gains.

Affected assets include:

• Directly held investment portfolios, including ISAs and General Investment Accounts

• Shares, ETFs, and funds held outside tax wrappers

• Dividend income

• Interest income

• Capital gains on financial investments

• Certain offshore investment structures, particularly those not French-compliant

• Non-professional furnished rental income (LMNP)

These investments are now typically taxed at:

• 12.8% income tax

• 18.6% social charges

Total effective rate: 31.4%

Previously, this total rate was 30%.

While the increase appears modest, over time it can materially reduce net investment returns.

Important exception: Reduced social charges for S1 holders

Individuals affiliated to another EU or UK healthcare system via an S1 certificate may benefit from a significantly reduced social charge rate of:

7.5% instead of 18.6%

This applies not only to pension income, but also to qualifying investment income.

For many British retirees in France, this remains a highly valuable and often overlooked advantage.

2. Additional Tax for Higher-Income Individuals (CDHR Extension)

The budget also extends the Contribution Différentielle sur les Hauts Revenus (CDHR).

This means the standard flat income tax rate of 12.8% on investment income may increase to as much as 20% for higher-income households.

This creates a potential combined tax rate of:

20% income tax + 18.6% social charges = 38.6% total

This reinforces the importance of proper investment structuring, particularly for individuals with significant portfolios or retirement income.

3. Assurance Vie Remains Unaffected and Continues to Offer Structural Advantages

Importantly, Assurance Vie has not been included in the recent increase in social charges.

Social charges within Assurance Vie remain at:

17.2% (no increase)

This preserves one of the key structural advantages of Assurance Vie compared to holding investments directly.

Depending on contract structure and investment selection, Assurance Vie may also provide:

• Deferral of income tax until withdrawal

• No capital gains tax when switching between funds within the contract

• Reduced income tax rates after eight years

• Significant estate planning advantages under French inheritance law

When properly structured, modern Assurance Vie contracts remain among the most tax-efficient investment vehicles available to French residents.

You can learn more in our detailed guide to Assurance Vie and its tax advantages, including how properly structured contracts can significantly improve long-term tax efficiency.

4. UK Pensions: No New Taxes Introduced

The budget introduced no new taxation specifically targeting foreign pensions.

However, existing French tax rules continue to apply.

UK pensions typically taxable in France include:

• SIPPs

• Defined contribution pensions

• Defined benefit pensions

• Pension drawdown income

• UK State Pension

These pensions are generally subject to French income tax once resident in France.

Social charge treatment depends on healthcare status, with many British retirees benefiting from reduced or exempt social charges through S1 coverage.

Important clarification: UK government service pensions

UK government-funded pensions (such as civil service, NHS, armed forces, police, and teachers’ pensions) benefit from special treatment under the UK-France Double Tax Treaty.

These pensions remain taxable in the UK but are only indirectly taxable in France. France applies a tax credit equal to the French tax due, resulting in no additional French tax liability.

However, these pensions are still taken into account when calculating overall tax rates applied to other income.

5. Wealth Tax (IFI) Remains Limited to Property Assets

There had been political discussion about extending wealth tax to financial investments, but this has not occurred.

IFI continues to apply only to property wealth.

IFI applies to:

• French property

• Worldwide property assets

• Property held via certain corporate structures

IFI does not apply to:

• Investment portfolios

• Assurance Vie investments

• Pension funds

Six-year exemption for non-French assets

New French residents benefit from a temporary exemption on non-French property.

Foreign property becomes assessable only after:

31 December of the year of arrival plus five additional years

In practice, this provides a six-year exemption period for international property assets.

This remains an important planning opportunity for new arrivals to France.

You can estimate your potential exposure using the MiraClair Wealth IFI Wealth Tax Calculator, designed specifically for expatriates and cross-border assets.

6. Property Owners Remain Exposed to Ongoing Taxation

Although no new property taxes were introduced, property ownership remains relatively tax-inefficient compared to properly structured financial assets.

Property owners may be exposed to:

• Wealth tax (IFI), where applicable

• Income tax on rental income

• Social charges (now 18.6%) on non-professional furnished rental income (LMNP)

• Capital gains tax on sale

This reinforces the importance of balanced and tax-efficient asset structuring.

7. Who Is Most Affected by the 2026 Changes

Most affected:

• French residents holding investments directly outside tax wrappers

• Higher-income individuals subject to CDHR

• Clients generating significant investment income or capital gains

• Individuals with LMNP rental income

Less affected:

• Clients using properly structured Assurance Vie

• Clients with S1 healthcare status

• Clients drawing primarily pension income

• Clients with structured retirement and withdrawal strategies

What This Means for MiraClair Wealth Clients

These changes reinforce an important principle of financial planning in France:

The structure of your investments has a direct and material impact on your long-term tax position.

The increase in social charges and extension of higher-income taxation make tax-efficient wrappers such as Assurance Vie and properly structured pension arrangements even more valuable.

Clients holding investments directly may benefit from reviewing their current arrangements to ensure continued efficiency under the updated framework.

MiraClair Wealth Approach

At MiraClair Wealth, we continuously monitor legislative developments and review client structures to ensure ongoing tax efficiency.

Our focus includes:

• Pension withdrawal optimisation

• Investment structuring

• Assurance Vie optimisation

• Wealth tax mitigation

• Cross-border tax planning

If you would like a review of your current position in light of the recent budget, we would be happy to assist.

Contributor acknowledgement

This article includes technical input and commentary from cross-border tax specialists with special thanks to François Mounielou for his expert contribution.

Important information

This article is provided for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may be subject to change in the future. Readers should not rely on this information as a substitute for personalised advice. MiraClair Wealth recommends seeking professional advice before taking any action based on the information contained herein.

MiraClair Wealth is a cross-border financial advisory firm. We do not provide tax or legal advice directly but work alongside qualified tax professionals where appropriate.

MiraClair Wealth
Cross-Border Financial Planning for British Expats in France, Spain, Cyprus, UK and Portugal