Analysis · VHNWI & UHNWI wealth — French Tax Code art. 235 ter C & 975 VII (2026 Finance Act, art. 7)

Wealth-holding company tax & IFI exemption: the interaction between art. 235 ter C and art. 975 VII

The 2026 French Finance Act (Law No. 2026-103 of 19 February 2026, art. 7) introduced two mirror mechanisms: the wealth-holding company tax (French Tax Code art. 235 ter C, an annual 20% charge on luxury assets) and a corresponding exemption from the IFI (real-estate wealth tax) (French Tax Code art. 975, new paragraph VII). For wealth-holding companies owning targeted assets (yachts, aircraft, precious metals, wine, passenger vehicles), the 20% charge under the wealth-holding company tax triggers an automatic IFI exemption on those same assets. This interaction reshapes the ownership trade-off for VHNWIs (EUR 5-30m) and UHNWIs (over EUR 30m) alike: full analysis, two worked case studies (EUR 8m and EUR 45m held through a holding company), structuring strategies.

Audit my IFI / 235 ter C position See the lead counsel
Analysis by Jonathan Bensaid · Tax lawyer · Paris & Geneva · 1 May 2026
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The essentials in 30 seconds

The 2026 French Finance Act (Law No. 2026-103 of 19 February 2026, art. 7) created two interdependent mechanisms: (1) the wealth-holding company tax (new article 235 ter C of the French Tax Code), an annual 20% charge on the market value of luxury assets held in a wealth-holding company; (2) a corresponding IFI exemption under the new paragraph VII of article 975 of the French Tax Code: assets subject to the wealth-holding company tax are exempt from the IFI (real-estate wealth tax).

Exact wording of paragraph VII of article 975 of the French Tax Code: "The assets referred to in 2° of article 965 are exempt where they have been subject to the tax established by article 235 ter C in respect of the financial year of the company referred to in the first sub-paragraph of A of I of that same article 235 ter C closed during the year preceding 1 January."

Strategic implication: for VHNWIs and UHNWIs, double taxation (20% wealth-holding company tax plus 1.5% IFI) does not arise. But the trade-off between the two regimes changes radically: paying a 20% annual wealth-holding company tax in order to escape the IFI on those same assets is rarely optimal. Pre-emptive restructuring (removing the assets from the holding-company perimeter, allocating them to a genuine economic activity) remains the dominant strategy.

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Comparative mechanics of the two mirror mechanisms

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1. Wealth-holding company tax (235 ter C)

An annual 20% charge on the market value of luxury assets held by wealth-holding companies.

  • Scope: companies (French, or foreign with assets in France) whose passive income exceeds 50%, controlled at 50% or more by an individual
  • Trigger threshold: aggregate market value of the assets of at least EUR 5m (I-A-1°)
  • Targeted assets (II-A): hunting/fishing properties, passenger vehicles, yachts, pleasure boats, aircraft, jewellery and precious metals, racing/show horses, wines and spirits, dwellings reserved for the personal use of the executive
  • Exclusions: operating real estate, cash, financial assets, jewellery/precious metals displayed in a museum or a place accessible to the public or to employees
  • Anti-avoidance presumption (I-B-1): holding through a trust or via a non-cooperative State is presumed to establish control by an individual (rebuttable)
  • Cap at 75% of worldwide income (X): for individuals liable to the tax (holders of a foreign holding company)
  • Not deductible from corporate income tax (IX): worsens the real economic burden
02

2. IFI exemption (new 975 VII)

The shares/units representing assets taxed under 235 ter C are automatically exempt from the IFI, with no election to make.

  • Applies as of right: automatic as soon as the wealth-holding company tax applies
  • Exact perimeter: exempts the assets referred to in 2° of article 965 of the French Tax Code (shares or units of companies representing real-estate assets or rights)
  • Important nuance: the exemption covers the value of the representative fraction, not the assets themselves
  • Timing lag: the IFI exemption applies to the year following the close of the taxed financial year
  • Convergence: eliminates the risk of double taxation (IFI plus wealth-holding company tax)
  • Cap: the 235 ter C tax also benefits from the 75% income cap for individuals (X), just as the IFI is capped at 70% (French Tax Code art. 979)
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3. Raw economic trade-off

On the assets concerned: 20% per year plus IFI exemption versus no wealth-holding company tax plus full IFI.

  • Scenario 1: assets held in a holding company (235 ter C applies): 20% of the value every year, IFI at 0%
  • Scenario 2: assets held directly (outside the scope of 235 ter C): no wealth-holding company tax, but IFI on real-estate wealth (up to 1.5%), which does not apply to yachts/aircraft/precious metals
  • Finding: the "offset" through the IFI exemption does not rescue the trade-off: 20% far exceeds 1.5%
  • Dominant strategy: remove luxury assets from the holding-company perimeter rather than bear 235 ter C, even with the IFI exemption
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4. Special situations to assess

A few situations where the interaction may work favourably.

  • Works of art in a holding company: without 235 ter C, exempt from the IFI under 965 (works of art are outside the IFI base). With 235 ter C, taxed at 20%. No exit towards a "neutral zone" is possible.
  • Assets in the course of transfer: if the holding company is undergoing a demerger or winding-up, the interaction may produce edge effects
  • Mixed holding companies: a real-estate portion (IFI applicable) plus a luxury-asset portion (235 ter C applicable, corresponding IFI exemption); detailed modelling is essential
  • QPC risk: the priority constitutionality question on the confiscatory nature of 235 ter C remains open. If it is struck down, the corresponding IFI exemption falls away as well
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Two worked case studies: VHNWI EUR 8m & UHNWI EUR 45m

The 235 ter C mechanism concerns any wealth-holding company crossing the ownership threshold, not only UHNWIs. Two typical profiles to measure the concrete impact.

The scope of 235 ter C reaches beyond UHNWIs

Article 235 ter C applies as soon as a wealth-holding company owns luxury assets, with no personal-wealth threshold. It concerns both VHNWIs (Very High Net Worth, wealth of EUR 5-30m) who hold part of their wealth through an SCI or a Luxembourg holding company, and UHNWIs (Ultra High Net Worth, wealth above EUR 30m) with more complex structures. Two typical cases, VHNWI EUR 8m and UHNWI EUR 45m, to measure the concrete impact.

Case A. VHNWI: EUR 8m wealth-holding company

VHNWI profile: total wealth of about EUR 25m

Head of a family business, net wealth of about EUR 25m. A Luxembourg holding company owns EUR 8m of assets targeted by 235 ter C (the EUR 5m threshold is crossed): classic cars EUR 2m, precious metals plus fine wines EUR 1m, and a dwelling reserved for the personal use of the executive EUR 5m (a second home held through the holding company). The rest of the estate (operating business, operating real estate, securities) falls outside the scope of 235 ter C. Note: if the holding company owned less than EUR 5m of assets in total, the tax would not apply.

A1. Status quo

Wealth-holding company tax under 235 ter C: 20% x EUR 8m = EUR 1.6m per year in theory. Before the cap: EUR 8m cumulated over 5 years, i.e. 100% of the value. Applying the 75% cap on worldwide income (X): if the individual receives about EUR 1.2m per year of worldwide income, the tax cannot exceed EUR 0.9m per year, i.e. about EUR 4.5m over 5 years, bringing the cumulative burden to about 56% of the value. The corresponding IFI exemption (975 VII) is marginal (the dwelling for personal use was already in the IFI base; art and cars are outside the IFI). Net cost over 5 years: EUR 4.5m to 8m depending on income levels.

A2. Transfer to personal ownership

Distribution in kind subject to the 30% flat tax (PFU): EUR 8m x 30% = EUR 2.4m as a one-off cost. No wealth-holding company tax thereafter. Total cost over 5 years: EUR 2.4m. Saving versus A1: EUR 5.6m. The most legally robust architecture for VHNWIs: a single transaction, with no recharacterisation risk over time.

A3. Allocation to a genuine economic activity

Classic cars hired out to film/event productions through a dedicated structure (about EUR 50K per year of recurring income). Works of art placed on documented loan with regional museums or displayed in a gallery open to the public. One-off cost of about EUR 80K plus about EUR 40K per year recurring. Total cost over 5 years: about EUR 280K. Saving versus A1: about EUR 7.7m. For VHNWIs, the governance requirement is more accessible than for UHNWIs, but a documented audit trail is indispensable.

Case B. UHNWI: EUR 45m wealth-holding company

UHNWI profile, net wealth of about EUR 150m. A Luxembourg holding company owns EUR 45m of luxury assets: an art collection of EUR 30m (about 80 modern and contemporary works), a yacht of EUR 12m (about 35 m, explorer class), precious metals plus wines of EUR 3m.

B1. Status quo

Wealth-holding company tax under 235 ter C: 20% x EUR 45m = EUR 9m per year in theory. For a French holding company (tax owed by the company): no cap applies, EUR 45m cumulated over 5 years, i.e. 100% of the value. For a foreign holding company taxed by reference to the French tax residence of the controlling individual (tax owed by the individual): the 75% cap on worldwide income applies (X). With EUR 8m per year of worldwide income, typical of a UHNWI, the cap is around EUR 6m per year, bringing the tax to about EUR 30m over 5 years. The confiscatory effect is confirmed in both cases.

B2. Transfer to personal ownership

Distribution in kind subject to the 30% flat tax (PFU): EUR 45m x 30% = EUR 13.5m as a one-off cost. No wealth-holding company tax thereafter. Total cost over 5 years: EUR 13.5m. Saving versus B1: EUR 31.5m.

B3. Allocation to a genuine economic activity

Yacht switched to commercial charter through a dedicated single-shareholder company (Mediterranean seasons, about EUR 600K of annual charter income, about 70% expenses); the art collection partly placed with a foundation plus documented long-term loans to museums. One-off cost of about EUR 250K plus about EUR 150K per year recurring. Total cost over 5 years: about EUR 1m. Saving versus B1: about EUR 44m. Risk: recharacterisation if the charter fails to generate a real margin or if the works remain in the executive's residence.

Shared finding & strategy

Whatever the amounts, the corresponding IFI exemption does not rescue the holding-company architecture against the 235 ter C tax. The gap between status quo and restructuring always reaches about 95% of the cost. For VHNWIs, transfer to personal ownership is generally the preferred route (simple, robust). For UHNWIs, allocation to a genuine economic activity may justify the additional complexity (a larger absolute saving). In all cases, the audit must be launched before 31/12/2026.

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Lead counsel: Jonathan Bensaid

Jonathan Bensaid, founding lawyer of the firm, admitted to the Paris and Geneva Bars, advises VHNWIs and UHNWIs, family offices and executives on auditing their wealth-holding companies against the twin 235 ter C / 975 VII mechanisms: quantified modelling of the three architectures, pre-emptive restructuring before 31/12/2026, defence in the event of a tax reassessment, and preparation of a QPC strategy in case the provision is struck down.

  • French Tax Code art. 235 ter C
  • French Tax Code art. 975 VII
  • 2026 Finance Act art. 7
  • Wealth-holding companies
  • VHNWI & UHNWI
  • Paris & Geneva Bars
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Q&A: questions from family offices, VHNWIs & UHNWIs

Is the IFI exemption under paragraph VII of article 975 of the French Tax Code automatic?

Yes, it applies as of right. There is no election to make. As soon as the assets are subject to the wealth-holding company tax (235 ter C), they are automatically exempt from the IFI (975 VII). The trigger is the close of the taxed financial year of the holding company during the year preceding 1 January of the relevant IFI year. Example: a financial year closed on 31/12/2026 leads to an IFI exemption for 2027.

Does the IFI exemption cover ALL the assets held by the holding company, or only those taxed under 235 ter C?

Only the assets actually taxed under 235 ter C. Article 975 VII refers to "the assets mentioned in 2° of article 965" which "have been subject to the tax established by article 235 ter C". If the holding company owns a mix of luxury assets (taxed) and operating real estate (not taxed under 235 ter C), only the former benefit from the IFI exemption. The real-estate portion remains fully subject to the IFI under the standard rules.

Is the trade-off favourable: a 20% wealth-holding company tax versus full IFI?

No, in the overwhelming majority of cases. The IFI tops out at 1.5% per year (highest bracket). The wealth-holding company tax is 20% per year. Over 5 years, the wealth-holding company tax represents 100% of the value of the asset versus about 7.5% of cumulative IFI. The corresponding IFI exemption does not "rescue" the holding-company architecture. For VHNWIs and UHNWIs, pre-emptive restructuring (transfer to personal ownership or allocation to a genuine economic activity) remains dominant.

What happens if a QPC strikes down article 235 ter C?

If the Constitutional Council strikes down all or part of article 235 ter C (confiscatory nature, article 13 of the 1789 Declaration of the Rights of Man), the corresponding IFI exemption under paragraph VII of article 975 falls away mechanically (its object having been deprived of effect). The assets concerned return to the IFI base under the standard rules. This must be anticipated in the defence strategy: do not rely solely on the IFI exemption without a fallback in case the provision is struck down.

By when must action be taken to escape the first taxable financial year?

Article 235 ter C applies to financial years closed on or after 31 December 2026. For a holding company closing its financial year on 31/12, the audit and the restructuring must be completed before that date. For a holding company with a different closing date, the first taxable financial year is the one closing after 31/12/2026. Given the lead times involved (notary, capital restructuring, formalities), the audit should be launched now and the restructuring completed no later than the third quarter of 2026.

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A confidential initial discussion. Quantified modelling of the three architectures (status quo, transfer to personal ownership, allocation to an economic activity), selection of the optimal strategy in light of the 235 ter C / IFI interaction, and operational implementation.

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© BENSAID Avocats. The information published on this site does not constitute legal advice. Sources: Law No. 2026-103 of 19 February 2026 (2026 Finance Act), art. 7; French Tax Code art. 975 (version in force since 21 February 2026), new paragraph VII; French Tax Code art. 235 ter C (in force for financial years closed on or after 31/12/2026); French Tax Procedure Code art. L. 64 (abuse of law); French Tax Code art. 965 (IFI base); French Tax Code art. 210 A (preferential merger regime). Editorial update: 1 May 2026.