The time-based capital gain allowance (abattement pour durée de détention) is a French tax reduction available on capital gains from the disposal of shares acquired before 1 January 2018, for taxpayers who opt for the progressive income tax rate rather than the 30% flat tax (PFU). The allowance is 50% for shares held between two and eight years, and 65% for shares held more than eight years (Articles 150-0 D and 150-0 D ter of the French General Tax Code).

For shares qualifying for the enhanced "founder" allowance (abattement renforcé — shares in SMEs less than ten years old at the time of acquisition, directly acquired at subscription or on the secondary market), the allowance reaches 50% (one to four years), 65% (four to eight years) and 85% (more than eight years). The enhanced allowance is lost if the taxpayer chooses the flat tax. The decision to opt for the progressive regime must be made globally for all capital income in the year.

In practice, the time-based allowance is still relevant for long-held shares in French family companies acquired before 2018 — particularly for founders of companies created in the early 2000s who may hold shares for 20+ years. For these shareholders, the effective tax rate under the progressive regime with 85% allowance may be significantly below the 30% PFU, especially at high marginal tax brackets where the progressive rate applies. A careful comparison of the two regimes is essential in any M&A transaction planning.

At Hectelion, we advise on the PFU vs progressive rate comparison and integrate holding period allowances into our valuation and transaction structuring mandates.