France Raised the Flat Tax to 31.4%. Assurance Vie Was Left Out.

Three pieces of French legislation changed the PPLI calculation in 2026 — one in favour, one against, and one that was proposed, passed a first reading, and then quietly disappeared. Here is where the position now stands, and what advisers should be modelling.

Two of our France articles — the resident portfolio piece and the non-resident piece — were written against the tax position as it stood in April 2026. Enough has moved since that the France picture deserves setting out in one place.

The short version: the cost of holding a portfolio directly in France went up. The cost of holding one inside a life insurance wrapper did not. The gap between the two widened by 1.4 percentage points on 1 January 2026, and it widened because the legislature made a deliberate choice to exclude insurance contracts from the increase.

That is the good news, and it is genuinely good. But there is a counterweight that most commentary has underplayed, and it lands squarely on the clients PPLI is built for.

What went up: the flat tax is now 31.4%

The Social Security Financing Law for 2026 (Law No. 2025-1403 of 30 December 2025) raised the CSG on capital income from 9.2% to 10.6% — a new levy branded the contribution financière pour l’autonomie, earmarked for elderly care funding.

The arithmetic runs through to the headline rate:

Component	Until 31 Dec 2025	From 1 Jan 2026
CSG	9.2%	10.6%
CRDS	0.5%	0.5%
Prélèvement de solidarité	7.5%	7.5%
Total social charges	17.2%	18.6%
Income tax component	12.8%	12.8%
Composite PFU (flat tax)	30%	31.4%

This applies to dividends, interest, capital gains on securities, PEA and employee savings income, cryptocurrency gains, and the exit tax on unrealised gains for individuals leaving France.

One detail that has caught people out. The increase reached back a year. For income collected by withholding — dividends, mainly — it applies from 1 January 2026. For income taxed only when it is reported on the annual return — capital gains, including crypto — it applies retroactively from 1 January 2025. Disposals made during 2025 and declared in spring 2026 were already assessed at 18.6%. Clients who modelled their 2025 exits at 30% got a larger bill than they expected.

What did not go up: life insurance

Article L. 136-8, IV of the Code de la sécurité sociale preserves the former 9.2% CSG rate for a defined list of income categories. Life insurance and capitalisation contracts are on that list. So are real estate rental income, real estate capital gains, and regulated savings products such as the PEL and CEL.

The consequence for PPLI is direct and quantifiable:

Holding route	Rate on gains	When payable
Direct portfolio — dividends, interest, securities gains	31.4%	Every year, as income arises and gains are realised
Qualifying policy, 8+ years, gains attributable to first €150,000 of premiums	~24.7% (7.5% + 17.2%)	On surrender
Policy gains above the €150,000 premium threshold	30% (12.8% + 17.2%)	On surrender

Two observations worth drawing out.

The first is the obvious one: the differential between a directly held portfolio and a qualifying policy widened from 5.3 points to 6.7 points, before any account is taken of the compounding benefit of deferral.

The second is less obvious and, for larger policies, more useful. The 7.5% reduced rate only ever applied to gains attributable to the first €150,000 of premiums per insured. Above that threshold the income tax component is 12.8%, which used to produce exactly 30% — the same rate as direct holding, leaving deferral as the only benefit. That is no longer the case. Because insurance kept the 17.2% social charge rate, a large policy now carries 30% deferred to surrender against 31.4% payable annually. The rate advantage is no longer confined to the first €150,000 of premiums. It applies across the whole policy.

What cuts the other way: the CDHR

Here is the part that deserves more attention than it has had.

The contribution différentielle sur les hauts revenus — CDHR — was introduced by the Finance Act for 2025 and made permanent by the Finance Act for 2026. It guarantees a minimum effective tax rate of 20% for households whose reference income exceeds €250,000 for a single taxpayer or €500,000 for a couple assessed jointly. Where income tax plus the exceptional contribution on high income (CEHR, at 3% and 4%) comes to less than 20% of reference income, the CDHR charges the difference.

Life insurance surrender gains count towards reference income. Which means the CDHR can reach directly into the headline benefit of a policy held more than eight years.

A worked illustration. A single taxpayer has €280,000 of reference income for 2026, of which €120,000 is a surrender gain on a policy held more than eight years. Taxed on the face of it at 7.5% income tax plus 17.2% social charges, the levies come to roughly €29,600. With the CDHR applied, the figure is approximately €41,600 — a surcharge of around €12,000 on a single withdrawal.

The 7.5% rate has not been repealed. But for a household above the threshold, in the year of a large surrender, it can be substantially neutralised.

This does not undermine the case for PPLI. The annual deferral, the Article 990I succession treatment, and the forced heirship mechanism are all untouched. What it changes is how a policy should be unwound. Surrender planning across multiple tax years, with staged partial withdrawals sized to keep reference income below the CDHR threshold, has moved from a refinement to a core part of the structure. An adviser who puts a client into a policy without modelling the exit is only doing half the job.

What was proposed, and then was not

During the passage of the Finance Act for 2026, the Assemblée nationale adopted at first reading — on 31 October 2025 — an impôt sur la fortune improductive. It would have replaced the IFI with a broader charge reaching assets characterised as unproductive: euro-denominated insurance funds, cryptocurrency, precious metals, and undeveloped land, among others.

Had it survived, it would have done real damage to one of the standard French PPLI arguments — that financial assets inside a policy sit outside the wealth tax base because the IFI reaches only real estate.

It did not survive. The Sénat modified it, and it was dropped from the final text adopted in February 2026 (Law No. 2026-103 of 19 February 2026, upheld by the Conseil constitutionnel on the same date). The IFI is unchanged: real estate only, €1.3 million threshold, rates from 0.5% to 1.5%.

The honest way to present this to clients is not that the IFI exclusion is safe. It is that the exclusion held this year, having come closer to being removed than at any point since the IFI replaced the ISF in 2018. It is a current advantage, not a structural guarantee, and a client whose plan depends entirely on it should know that.

Cryptocurrency: rate up, taxable events unchanged

Two changes and one persistent misconception.

The rate. Crypto gains under Article 150 VH bis CGI now attract 31.4%, with the retroactive application to 2025 disposals noted above. Since 1 July 2026 the article refers to crypto-assets within the MiCA perimeter rather than the former actifs numériques terminology.

NFTs. From 1 January 2026, unique and non-fungible crypto-assets are removed from Article 150 VH bis by the new Article 150 VH ter (Law No. 2026-534 of 25 June 2026). They are taxed under the regime applicable to whatever the token represents — which can bring the Article 150 VI regime for art, collectibles and precious metals into play.

The misconception. France does not tax crypto-to-crypto exchanges. Under Article 150 VH bis, II-A, an exchange between crypto-assets without a soulte is an intercalary operation in sursis d’imposition — administrative doctrine at BOI-RPPM-PVBMC-30-10 confirms it. Tax arises on conversion into currency, on exchange for a non-crypto asset, on an exchange with a balancing payment, and on the purchase of goods or services. Nothing in the 2026 legislation changed this.

We make the point because the opposite claim circulates widely in PPLI marketing, and it is worth being precise about where the wrapper genuinely helps a French crypto client. Not with rebalancing between tokens, which is untaxed either way. It helps at the exit — when the client wants to convert to fiat or rotate out of digital assets into equities, bonds or funds, which is exactly the point at which a direct holder crystallises 31.4% on the whole embedded gain. Inside the policy that rotation is not a French tax event, and the charge is deferred to surrender, on the client’s timing.

Non-residents: the nine-jurisdiction withholding rule

For completeness, since both earlier articles touch on it and the guidance has now been published.

Article 119 bis A, II CGI — enacted by the Finance Act for 2025 as an anti-dividend-arbitrage measure and effective for dividends paid from 1 January 2026 — withdraws relief at source where the recipient is resident in a state whose treaty with France gives a full withholding exemption with no minimum-participation condition. The tax authority confirmed the affected list in BOI-INT-DG-20-20-20-30 on 16 March 2026, and it runs to nine jurisdictions: Saudi Arabia, Bahrain, Egypt, the United Arab Emirates, Finland, Kuwait, Lebanon, Oman and Qatar.

Affected recipients must suffer withholding at the domestic rate — 12.8% for individuals, 25% for companies — and reclaim from the Direction des impôts des non-résidents, with a heavy evidentiary burden covering the intermediary chain and beneficial ownership. Everyone else continues under the ordinary forms 5000/5001 relief-at-source procedure.

The UAE’s presence on that list matters more than the others for internationally mobile clients with French portfolios. Where the French assets sit inside a Luxembourg policy, the insurer is the asset owner and manages the position at policy level — though the beneficial-ownership analysis for insurers is fact-sensitive and should be confirmed with French counsel rather than assumed.

What is coming in January 2027: the right to be paid out

One further change belongs in any 2026 review of France, because it is the first serious qualification to an argument the offshore market has relied on for a decade.

Since 2017, the Haut Conseil de stabilité financière has held a power under Article L. 631-2-1 of the Code monétaire et financier — inserted by the Sapin II law — to limit payment of surrender values across the French insurance sector, and to delay or limit switching between funds. It is macroprudential: it can be directed at solvent, compliant insurers to protect the system as a whole. Surrender limitations are capped at six consecutive months; the restriction on switching carries no express outer limit. It applies to unit-linked contracts on exactly the same terms as euro funds, so the common suggestion that a unit-linked policy escapes it is simply wrong. It has never been used, in the COVID shock or the 2022–2023 rate rise.

On the better reading of the law it does not reach a policy issued from Luxembourg under the freedom to provide services. The power is conferred by reference to undertakings within the ACPR’s competence, and financial supervision of an inbound EEA insurer — expressly including its liquidity and its ability to meet commitments to policyholders — is reserved to the home supervisor by Article 30(1) of Solvency II. The rapporteur of the Senate finance committee said as much during the passage of the bill, complaining that the measure would apply only to bodies established in France and that undertakings operating under the freedom to provide services would fall outside it. That reading has never been tested in court, and no French or Luxembourg regulator has published a position on it.

What changes is this. Directive (EU) 2025/2, the Solvency II review, requires every Member State to give its supervisor a power to temporarily suspend life insurance redemption rights — exceptional circumstances, last resort, three months at a time, renewable. Transposition is due by 29 January 2027 and application begins on 30 January 2027. Luxembourg approved its transposition bill for deposit on 17 July 2026, expressly including the macroprudential tools. Separately, the Insurance Recovery and Resolution Directive gives resolution authorities a suspension power with no stated maximum duration for an undertaking in resolution, effective across the EU without any host-State formality.

For a Luxembourg PPLI policy the authority holding that power will be the Commissariat aux Assurances rather than the ACPR — but EIOPA’s guidelines, published in July 2026 and applying from the same date, contemplate that the exceptional circumstances justifying a suspension may be triggered by events in a host Member State. A French market event can therefore inform a Luxembourg decision.

None of this makes the Luxembourg position weak. Luxembourg’s real advantages were never about being unfreezable: they are the patrimoine distinct, the first-ranking privilege of insurance claims over the assets backing them with no carve-out for the State or employees, and — for unit-linked business — a first rank over the proceeds of the client’s own underlying assets, transferable in kind. Worth knowing too that the CAA has twice blocked payments on a firm-specific basis, most recently in the FWU liquidation in 2024, where it confirmed that policyholders would be treated equally regardless of country of residence.

The practical point for advisers: stop using “outside Sapin II” as a permanent structural claim. It is defensible today and it has a date on it. Record the analysis properly in the suitability file instead.

What has not changed

Worth stating plainly, because a year of budget noise can leave the impression that everything moved:

• Article 990I — the €152,500 per-beneficiary allowance, then 20% on the next €700,000 of taxable benefit (to €852,500 of gross benefit), then 31.25%. Untouched. Proposals to permit anticipated transmission of life insurance capital were dropped during the Finance Act’s passage.
• Article 757B — the €30,500 allowance shared between beneficiaries for premiums paid after the policyholder’s 70th birthday, with investment growth remaining outside succession tax. Untouched.
• Article L132-13 Code des assurances — life insurance proceeds outside the réserve héréditaire, subject to the manifestement exagérées test. Untouched.
• The IFI — real estate only, €1.3m threshold. Untouched, as set out above.
• Inheritance tax — €100,000 allowance in the direct line, 60% for unrelated beneficiaries above €1,594. Untouched.
• Form 3916 BIS — the annual declaration of foreign life insurance contracts, with penalties of €1,500 to €10,000 per undeclared contract. Untouched.

What advisers should do now

Re-run the illustrations. Any France PPLI model built on 30% and 17.2% understates the direct-holding cost and therefore understates the benefit of the structure. The comparison is now 31.4% annually against 24.7% or 30% deferred.

Add the CDHR to the exit plan. For any client whose reference income is near or above €250,000 single or €500,000 joint, model the surrender across multiple years before recommending the structure, not after. This is the single most important practical change of 2026.

Correct the crypto pitch. If a client has been told that every crypto swap costs them 31.4% in France, that is wrong, and a competent French tax adviser will say so. The exit argument is the strong one and does not need embellishment.

Check pre-residency timing against the new rate. For a client relocating to France with embedded gains, the deferred liability is now larger, which makes the pre-residency window worth more, not less.

Do not over-claim on the IFI. Financial assets in a policy remain outside the wealth tax base. Say that, and say that a proposal to change it reached a first reading in the Assemblée nationale in October 2025.

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Sources. Law No. 2025-1403 of 30 December 2025 (LFSS 2026), art. 13; Code de la sécurité sociale art. L. 136-8, IV; Law No. 2026-103 of 19 February 2026 (LF 2026) and Conseil constitutionnel decision no. 2026-901 DC; Law No. 2026-534 of 25 June 2026; CGI arts. 125-0 A, 150 VH bis, 150 VH ter, 757B, 990I, 119 bis A; Code des assurances art. L132-13; BOFiP BOI-RPPM-PVBMC-30-10 and BOI-INT-DG-20-20-20-30 (16 March 2026); impots.gouv.fr; PwC Worldwide Tax Summaries — France (reviewed 24 April 2026).

This article reflects the French tax position as at August 2026. It is provided for general information for professional advisers and does not constitute legal, tax, or financial advice. French tax law changes annually through the budget process; verify the current position and obtain independent French tax counsel before advising clients or implementing any structure.

Related reading

• France Taxes Your Portfolio Every Year. Offshore PPLI Doesn’t. — the resident case, the annual drag, and the Article 990I succession advantage
• You Don’t Live in France. But France Still Taxes You. — non-residents with French property, accounts, and pre-residency crypto planning