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

Wealth-holding company tax and IFI: the exemption in article 975, VII

The 2026 French Finance Act (Law No. 2026-103 of 19 February 2026, art. 7) created the wealth-holding company tax (French Tax Code art. 235 ter C, 20% a year on certain luxury assets) and, alongside it, an IFI exemption (real-estate wealth tax) in paragraph VII of article 975. The exemption applies to the shares of the taxed company, up to their real-estate fraction only: it concerns real estate alone, first and foremost dwellings reserved for the family's own use. Yachts, vehicles, jewellery, precious metals and wine are outside the IFI: for them, the tax comes on top, with nothing to offset it. Analysis of the text and two worked cases (holding companies of EUR 12m and EUR 45m).

Audit my holding company (IFI and 235 ter C) Run the 235 ter C check
Analysis by François Ouairy, partner · Paris · Updated 5 October 2026
— 01

The essentials in 30 seconds

Article 7 of Law No. 2026-103 of 19 February 2026 created two linked mechanisms: (1) the wealth-holding company tax (article 235 ter C of the French Tax Code), equal to 20% of the market value, at the year-end, of the assets listed in section II of that article, due for financial years closed on or after 31 December 2026; (2) an IFI exemption in paragraph VII of article 975, for the shares of the company that bore the tax.

Wording of article 975, VII (unofficial translation): "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 article 235 ter C closed during the year preceding 1 January." The assets in 2° of article 965 are shares in companies, up to the fraction of their value that represents real-estate assets or rights.

In practice: the exemption only affects the real-estate fraction of the shares. The text does not say whether it covers that entire fraction, or only the dwellings included in the tax base under 7° of section II. In any event, it offsets nothing for yachts, aircraft, vehicles, jewellery, precious metals, wine or horses, which were never subject to the IFI. Even for a dwelling, it saves at most 1.5% a year against a 20% tax: restructuring before the year-end usually remains the central question.

— 02

The tax, the exemption and how they interact

01

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

An annual 20% tax on the market value, at the year-end, of a closed list of assets held by a wealth-holding company. See the full analysis of the wealth-holding company tax.

  • Companies concerned: companies with their registered office in France subject to corporate income tax; companies with their registered office outside France, subject to an equivalent tax or that are capital companies, where at least one individual meeting the control condition (I, A, 2° and I, B, 1) is tax-resident in France
  • Three conditions at the year-end: total assets with a market value of at least EUR 5m; at least 50% of the voting or financial rights held by an individual together with their family circle, or de facto decision-making power; passive income above 50% of operating and financial income
  • Taxed assets (II, A): hunting and fishing assets; vehicles not used for a business, passenger vehicles, yachts, pleasure boats, aircraft; jewellery and precious metals; racing or show horses; wines and spirits; dwellings reserved for the use of the controlling individual (family circle included)
  • Outside the base: listed assets used in an industrial, commercial, craft, agricultural or professional activity, in proportion to that use; jewellery and precious metals displayed in a place open to the public or to employees (offices excluded); cash, securities, real estate let at market terms and works of art, which nonetheless count towards the EUR 5m threshold
  • Presumption: holding through a trust or through an entity in a non-cooperative State or territory, unless proven otherwise
  • Who pays: the company if its registered office is in France; otherwise the individuals meeting the control condition and tax-resident in France, on the fraction of the value of their holding representing the taxed assets, unless they show that the choice of registered office and the holding of the shares were not mainly aimed at circumventing French tax law
  • Cap (X): for those individuals only; the tax is reduced by the amount by which the tax plus the taxes due on the previous year's income exceed 75% of that income
02

2. IFI exemption (975, VII)

The shares of the company subject to the tax are exempt from the IFI on the 1 January following the year in which the taxed financial year closed, with no election to make.

  • What is exempt: the assets referred to in 2° of article 965, i.e. the shares up to the fraction of their value representing real-estate assets or rights; the text does not expressly limit it to taxed dwellings
  • What is not concerned: yachts, vehicles, aircraft, jewellery, precious metals, wine, horses and works of art, which are outside the IFI base: the exemption brings them nothing
  • Timing: financial year closed on 31 December 2026, exemption for IFI 2027; financial year closed on 30 June 2027, exemption for IFI 2028
  • Scope still to be clarified: no administrative guidance as at 5 October 2026; a literal reading covers the entire real-estate fraction of the taxed company's shares, even if the company is taxed only because of a yacht or jewellery; a reading based on the purpose of the text limits it to the dwellings included in the tax base. It also remains to be seen whether a company that meets the conditions but has a nil tax base has been "subject to the tax"
  • Separate caps: the IFI remains capped at 75% of income (art. 979); the holding tax is capped only where it is owed by an individual in respect of a foreign company (X)
03

3. The trade-off for a dwelling

The typical situation in which the two taxes meet: a dwelling reserved for the family's use.

  • Dwelling in the taxed holding company: 20% of its value every year (less, where applicable, the acquisition loans taken into account by the text), shares exempt from the IFI the following year
  • Dwelling held directly: no holding tax, IFI at the scale rates (top marginal rate of 1.5%, 30% allowance for a main residence)
  • Finding: the IFI exemption does not offset the tax; the gap runs to tens of percentage points
  • Other routes: a market rent paid by the occupant, or a letting to a third party at market terms, in principle takes the dwelling out of 7°; the company is then no longer taxed on that asset and, if it is no longer taxed on any other, its shares return to the ordinary IFI rules
04

4. Special situations to assess

Situations in which the interaction requires case-by-case analysis.

  • Works of art in a holding company: outside the IFI (article 965) and not listed in section II of article 235 ter C. They are not taxed as such, but count towards the EUR 5m threshold. Only jewellery and precious metals are targeted.
  • Mixed holding companies: a taxed dwelling and properties let at market terms in the same company; the extent of the share exemption depends on the reading of paragraph VII, to be secured before filing the IFI return
  • Exit during the year: the conditions are assessed at each year-end; a company that is no longer taxed for a financial year loses the IFI exemption on the following 1 January
  • Constitutionality: decision No. 2026-901 DC of 19 February 2026 did not review article 7 on the merits (§ 60). A priority question of constitutionality (QPC) may therefore be raised in the course of a dispute; it does not in itself suspend the obligation to file and pay
— 03

Two worked cases: EUR 12m and EUR 45m holding companies

Simplified assumptions: values and tax base assumed constant each year, regardless of how the tax is funded; conditions met at each year-end; distributions assumed to be taxed in full as distributed income at the flat tax, without opting for the progressive scale. Orders of magnitude, to be reworked on the actual documents.

The tax does not depend on personal wealth

Article 235 ter C applies as soon as a company meets its conditions at the year-end (EUR 5m of assets, family control of at least 50%, mostly passive income), whatever the shareholder's wealth. It concerns VHNWIs (Very High Net Worth, wealth of EUR 5-30m) who hold some assets through a holding company subject to corporate income tax, as well as UHNWIs (Ultra High Net Worth, over EUR 30m) and their foreign structures.

Case A. French holding company: EUR 12m

VHNWI profile: total wealth of about EUR 25m

Head of a family business. A French SAS holding company subject to corporate income tax, 100% family-owned and with no operating activity, holds EUR 12m of assets: securities portfolio EUR 4m (outside the base, but counted for the threshold), second home occupied free of charge by the family EUR 5m (no loan), classic cars EUR 2m, jewellery, precious metals and wine EUR 1m. Income: dividends and interest from the portfolio. Tax base: EUR 8m.

A1. Status quo

Tax: 20% x EUR 8m = EUR 1.6m a year, owed by the company, with no cap, not deductible. IFI exemption (975, VII): the real-estate fraction of the shares (5/12 of their value, about EUR 5m) leaves the IFI, saving at most EUR 75,000 a year at the 1.5% marginal rate. The cars, jewellery and wine were never subject to the IFI: nothing is offset for them. Net cost over 5 years: about EUR 7.6m (EUR 8m of tax, less at most EUR 0.375m of IFI).

A2. Transfer of the assets to personal ownership

Distribution in kind of the EUR 8m of assets, subject to sufficient distributable profits: 31.4% flat tax (2026 rate), i.e. about EUR 2.5m once, plus corporate income tax on the holding company's unrealised gains and the transfer costs on the dwelling, to be quantified. No holding tax thereafter; the dwelling held directly returns to the IFI (at most EUR 75,000 a year). Cost over 5 years: about EUR 2.9m excluding corporate tax on gains and costs. Difference from A1: about EUR 4.7m.

A3. Targeted restructuring

The dwelling is occupied against a market rent (assumption: EUR 150,000 a year): it leaves 7°, and corporate tax on the rent costs about EUR 37,500 a year. The cars are used in a genuine rental activity, which excludes them in proportion to that use (running costs to be quantified). Jewellery, precious metals and wine (EUR 1m) are distributed: flat tax of about EUR 314,000. As the company is no longer taxed on any asset, its shares in principle return to the IFI on the dwelling (at most EUR 75,000 a year). Cost over 5 years: about EUR 0.9m excluding the costs of the rental activity. Difference from A1: about EUR 6.7m. The activity must be genuine and documented.

Case B. Luxembourg holding company: EUR 45m

UHNWI profile, net wealth of about EUR 150m, tax-resident in France and sole controller of a Luxembourg holding company, a capital company meeting the conditions of the tax. It holds EUR 45m of targeted assets: jewellery EUR 22m and precious metals EUR 8m (physical gold), a EUR 12m yacht, a EUR 3m wine cellar. No real estate: article 975, VII plays no part. If the EUR 30m of jewellery and metals were works of art, the base would fall to EUR 15m.

B1. Status quo

As the company's registered office is outside France, the tax is owed by the shareholder (III, 2) on the fraction of the holding's value representing the targeted assets: 20% x EUR 45m = EUR 9m a year before the cap, unless the shareholder shows that the Luxembourg seat is not mainly aimed at circumventing French tax law. Cap (X), assumption: EUR 8m of worldwide income and EUR 3m of taxes on that income. The tax is reduced by (9 + 3) − 6 = EUR 6m, bringing it to EUR 3m a year, i.e. EUR 15m over 5 years. With a French holding company, the company would pay EUR 9m a year, with no cap.

B2. Transfer of the assets to personal ownership

Distribution in kind of the EUR 45m: 31.4% flat tax, i.e. about EUR 14.1m once, excluding Luxembourg taxation of the distribution and of unrealised gains. No holding tax thereafter. Difference from B1 over 5 years: small (EUR 14.1m against EUR 15m) while the cap applies; the transfer becomes clearly favourable beyond 5 years or if the shareholder's income rises, which reduces the effect of the cap.

B3. Allocation to a genuine activity

The yacht is operated in commercial charter by the company or a related company: it leaves the base in proportion to that use, which rules out family use. The jewellery is displayed in a place open to the public, an exclusion provided by the text, which means it is no longer worn. Gold and wine (EUR 11m) are distributed: flat tax of about EUR 3.5m. Cost over 5 years: about EUR 3.5m excluding running costs (crew, insurance, exhibition space). Difference from B1: about EUR 11.5m. Risk: reassessment if the charter is not a genuine activity or if the jewellery remains in family use.

Shared finding

The IFI exemption in article 975, VII only protects the real-estate fraction of the shares: it slightly reduces the cost of a taxed dwelling, never that of a yacht, jewellery or a wine cellar. The choice lies between status quo, transfer and genuine allocation, quantified together with corporate tax on unrealised gains, transfer costs and, for a foreign company, the cap. For a holding company with a 31 December year-end, the position at 31 December 2026 determines the first tax.

— 04

Lead counsel: François Ouairy

François Ouairy, partner admitted to the Paris Bar, advises families, family offices and their advisers on auditing their wealth-holding companies under articles 235 ter C and 975, VII: checking the conditions at the year-end, quantifying the scenarios, restructuring before 31 December 2026, defence in a tax audit and, where appropriate, a priority question of constitutionality.

  • 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
— 05

Questions from family offices, VHNWIs & UHNWIs

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

Yes, it applies as of right, with no election. It covers the company's shares (up to their real-estate fraction) where the company was subject to the article 235 ter C tax for a financial year closed during the year preceding 1 January. Example: financial year closed on 31 December 2026, exemption for IFI 2027.

Does the exemption cover all the assets held by the holding company?

No. It only applies to the shares, and only up to their fraction representing real estate. Yachts, vehicles, jewellery, precious metals and wine are not subject to the IFI: the exemption changes nothing for them. For real estate, the open question is whether it covers the entire real-estate fraction of the shares or only the dwellings included in the tax base; no administrative guidance settles it as at 5 October 2026, and the firm applies the cautious reading to properties let at market terms.

Can paying the tax in order to be exempt from the IFI make sense?

Almost never. The IFI tops out at 1.5% a year (highest bracket); the tax is 20% a year. Over 5 years, at constant value, the tax reaches the value of the dwelling, against at most 7.5% of IFI. The options to compare are removing the asset, a market rent or allocation to a genuine activity.

Are works of art held by the holding company taxed?

In principle, no. Works of art are not listed in section II of article 235 ter C and are outside the IFI. An item that is, by nature, jewellery or precious metal remains taxable, unless displayed in a place open to the public or to employees. Works of art do count towards the total value of assets for the EUR 5m threshold.

Can the tax be challenged before the Constitutional Council?

The question remains open. When reviewing the 2026 Finance Act, the Constitutional Council noted that article 7 had been adopted under a procedure consistent with the Constitution, without reviewing it on the merits (decision No. 2026-901 DC of 19 February 2026, § 60). A priority question of constitutionality may therefore be raised in the course of a dispute. It does not in itself suspend the obligation to file and pay; the effects of any decision, including on the exemption in article 975, VII, would depend on what the Council decided.

When must action be taken before the first taxable financial year?

The tax is due for financial years closed on or after 31 December 2026. For a holding company with a 31 December year-end, the position at that date determines the first tax, payable by 15 May 2027 at the latest. For another year-end, the first taxable financial year is the first one closed on or after 31 December 2026. A distribution, a property transfer or a new lease takes several weeks: the audit should be started without delay.

Cité par

Audit your wealth-holding company before 31 December 2026

A confidential initial discussion. Checking the conditions of the tax, quantifying the scenarios (status quo, transfer of the assets, market rent or allocation to an activity), the IFI impact and implementation.

Request an audit See François Ouairy's profile

© 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. 235 ter C (financial years closed on or after 31 December 2026); French Tax Code art. 975 (version in force since 21 February 2026), VII; French Tax Code art. 965 (IFI base) and 979 (cap); Constitutional Council, decision No. 2026-901 DC of 19 February 2026. Updated: 5 October 2026.