What the 75% tax cap means for IFI
The plafonnement system is meant to stop French tax residents from paying too much of their income
This mechanism aims to avoid the combined income tax, wealth tax and social charges of an IFI household rising to above 75% of its income. It applies only to French tax residents and works as follows:
Your IFI may be reduced by the difference between:
- The total of IFI wealth tax plus other taxes due in France and abroad on income for the previous year (2025) by members of the IFI foyer fiscal (so not, for example, including the income of a spouse who died in 2025 and not including local property taxes) and…
- 75% of your worldwide income for the previous year (2025) net of professional expenses and any deficits that are allowed to be deducted for income tax purposes, plus income exempt from French income tax and incomes which were subject to taxation at source.
Income in question is that of all members of the IFI foyer fiscal. Capital gains are added in full, not including any reductions or abatements relating to capital gains tax (apart from professional expenses).
Annex 5 of the 2042- IFI form should be filled in to provide the tax office with the information needed to calculate the plafonnement.
Note that if you do not make a wealth tax declaration and are subsequently required to the plafonnement will not be available.
Several years ago the government expressed concern about a practice consisting of people investing into holding companies known as 'cash boxes' so as to reduce their apparent income for purposes of the wealth tax plafonnement calculation.
A law was passed allowing the tax offices to take account of the procedure if there is evidence that it has been used to 'artificially' lower a person's income.