Definition of the single flat-rate levy

The single flat-rate levy, often referred to as the PFU or the “flat tax”, is a method of taxation applied to certain capital income and financial gains.

Introduced in France in 2018, the PFU aims to simplify the taxation of savings and financial investments.

In the field of wealth management, this mechanism has become central because it applies to many types of wealth-related income:

• dividends;
• interest;
• capital gains on securities;
• income from financial investments;
• certain life insurance withdrawals.

The PFU is based on an overall flat rate of 30%.

How does the PFU work?

The single flat-rate levy is made up of two components:

• 12.8% income tax;
• 17.2% social security contributions.

For a total of 30%.

This rate applies automatically to many types of capital income unless the taxpayer opts otherwise.

In a wealth management strategy, the PFU provides better visibility on the tax treatment applicable to financial investments.

However, the taxpayer can sometimes choose taxation under the progressive income tax scale if that option is more advantageous.

Which income is covered by the PFU?

The single flat-rate levy applies to several categories of wealth-related income:

• dividends;
• interest;
• bond coupons;
• capital gains on shares;
• certain life insurance income;
• income from financial investments.

In the field of wealth management, the PFU therefore applies to a large share of income derived from financial markets.

Some products, however, remain subject to specific tax regimes.

What impact does the PFU have on life insurance?

Life insurance benefits from a specific regime.

For payments made after 27 September 2017, gains from withdrawals may be subject to the PFU.

However, after eight years of holding, tax advantages still apply thanks to:

• an annual allowance;
• certain reduced rates depending on the amounts invested.

In wealth strategies, life insurance therefore retains significant tax appeal despite the introduction of the PFU.

This is one of the reasons why this investment remains widely used in wealth management.

PFU or progressive scale: what is the difference?

The taxpayer can sometimes choose between:

• the single flat-rate levy;
• taxation under the progressive scale.

The choice mainly depends on:

• income level;
• marginal tax bracket;
• overall wealth situation.

For some low-taxed taxpayers, the progressive scale may be more advantageous than the PFU.

Conversely, for heavily taxed taxpayers, the 30% flat rate can be an attractive option.

In a wealth strategy, this choice must be assessed carefully.

Why is the PFU important in wealth management?

The single flat-rate levy directly influences:

• the net profitability of investments;
• wealth allocation decisions;
• tax strategy;
• asset allocation.

Before the PFU was introduced, the taxation of capital income was often considered more complex and sometimes heavier.

Today, the PFU provides a simpler reading of the tax treatment applicable to many financial investments.

In wealth management, this notably makes it easier to:

• compare investment vehicles;
• income strategies;
• overall tax optimisation.

Does the PFU apply to real estate?

The PFU mainly applies to income from movable capital.

Traditional rental property income generally remains subject to:

• the progressive income tax scale;
• social security contributions.

However, certain financial real estate investments may be indirectly affected, notably via:

• listed companies;
• certain real estate financial vehicles;
• certain hybrid wealth products.

Why seek support to optimise the PFU?

The choice between the PFU and the progressive scale can have a significant impact on the real profitability of a portfolio.

A wealth management adviser or a tax specialist can help to:

• optimise tax trade-offs;
• structure wealth-related income;
• choose suitable investments;
• reduce the overall tax burden;
• anticipate the tax consequences of investments.

For substantial or diversified wealth, the taxation of financial income is often a major issue.

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