Since 2018, most investment income, such as interest, dividends, and capital gains, has been subject by default to the “flat tax,” known as the Prélèvement Forfaitaire Unique (PFU).
This system applies a fixed rate of 12.8% for income tax purposes, to which social charges are added.
Since 1st Jan of this year, the social charges are 18.6% (up from 17.2%), although for EEA and British non-residents, as well as those resident with an S1 certificate of health exemption, the social charges rate is 7.5%.
However, taxpayers have always had the option of be taxed under the progressive income tax scale. This choice, exercised when filing the annual tax return (form 2042, box 2OP), applies to all financial income within the household.
This is advantageous for households whose marginal tax rate is below 12.8%, or who are not taxable at all.
For higher brackets (30% and above), the flat tax generally remains more advantageous.
Until now, this option came with a significant constraint as the choice to opt for the progressive scale was “explicit and irrevocable.” Once selected, taxpayers could not reverse their decision, even if it later proved unfavourable.
While the tax authority allows limited corrections after the fact, these exceptions remain tightly controlled.
The 2026 Finance Act removes this constraint by eliminating the irrevocable nature of the option.
Going forward, taxpayers will be able not only to choose the progressive scale but also to withdraw that choice if it turns out to be disadvantageous.
In practical terms, the change applies to income earned from 1st January, 2026 onwards. Taxpayers will first benefit from it when filing their 2026 income in 2027.
The reform does not apply retroactively. Investment income earned in 2025 and declared in 2026 remains subject to the previous rules. Any election for the progressive scale made at that time will still be irreversible.
Despite the new flexibility, some key features remain unchanged. The option for the progressive scale continues to be global, meaning it applies to all eligible investment income within the household. Taxpayers cannot pick and choose income streams individually.
To assist taxpayers, the online filing system may flag situations where an alternative choice could be more beneficial.
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