2026 Finance Act: rental value enters everyday tax litigation

Article 235 ter C defines the tax base by means of an exhaustive list of taxable assets. As regards real estate (II-A, 7°), that list includes dwellings whose use is reserved for the individual controlling the company or for his or her extended family circle: occupied free of charge, let at a rent below the market price, or let fictitiously. Conversely, a property let to a third party on normal market terms does not fall within the taxable list. For real estate, the boundary of the tax is therefore a rental boundary, built on a single concept: the market rent.

Administrative case law and tax doctrine have long used the reference to normal market conditions to characterise an abnormal management act on the company side and a hidden benefit on the shareholder side. What the 2026 Finance Act changes is the addition of a third effect, heavier in tax terms: for a dwelling held by the company, a rent below the market price keeps the asset itself within the base of the annual 20% tax on its market value.

This triangle of risk is unprecedented in its simultaneity:

• Remaining within the Article 235 ter C base: the dwelling remains taxable and the company is liable to an annual 20% tax on its market value (net of the property-related debts allowed as deductions).
• Abnormal management act: the company is reassessed for the shortfall relative to a market rent.
• Hidden benefit: the individual who benefits is personally taxed on the difference, as distributed income.

These three angles are not mutually exclusive: they are cumulative. And each of them, to be contested in an audit, requires the company to be able to produce a market rent reference that is itself enforceable.

The economic weight of the mechanism justifies this requirement. A 20% rate, applied annually to market value, mechanically reaches 100% of that value over five years. For an €8m chalet held through a holding company and free of debt, the annual tax amounts to €1.6m; for a hôtel particulier valued at €15m, €3m. Three features aggravate the effect: the tax is not deductible from corporation tax; it applies to market value and not to income; and for companies with their registered office in France, no cap is provided for (the cap at 75% of worldwide income applies only to individuals controlling a holding company established outside France).

This feature is the subject of critical analyses, which consider a priority question of constitutionality based on the principle of non-confiscation, as well as potential non-compliance with freedom of establishment. To date, no decision has ruled on these questions: until they are settled, the mechanism applies as it stands, and exiting the tax base by the rental route remains, for assets held for private use, the only operational lever available.

In the standard rental market, determining a market rent follows well-established markers: databases of comparables, ranges by neighbourhood, sufficient transaction volume. In the prime and ultra-prime segments, these conditions are not met.

First obstacle: the scarcity and opacity of comparables. A 600 m² hôtel particulier on rue de Varenne or a 350 m² chalet in Val d’Isère does not give rise to publicly recorded leases. Leases are signed confidentially, sometimes through intermediary structures.

Second obstacle: seasonal distortion. An Alpine chalet has no year-round rental market: it has a high-season market (15 to 20 weeks), a residual mid-season market, and economic vacancy for the rest of the year. Converting a high-season weekly rent into an annual rental value requires an explicit methodology.

Third obstacle: the nature of advertised yields. The gross yields quoted on the market (1.5% to 2.5% for a luxury chalet) generally derive from short-term, all-inclusive lettings, whose price includes the attached services (concierge, cleaning) and the intermediary’s commission. A direct transposition leads to systematic overestimation.

Fourth obstacle: the confidentiality of leases between related parties. When the property is made available to a shareholder, the rent charged often results from a historical calculation that has never been tested against a market reference.

These four obstacles define what is specific about a prime valuation, and explain why a letter from an estate agency, even a prestigious one, does not constitute an enforceable document for tax purposes.

A rental value produced in a contentious tax context must be documented by an explicit methodology, supported by references that a third party can reconstruct, and consistent with the market value of the same asset.

The direct comparison approach is the valuers’ benchmark, but it quickly reaches its limits in the prime market: the sample of documented comparable leases is rarely sufficient, and the valuer has to draw on heterogeneous sources while making adjustments and weightings explicit. A value produced by this method alone must be cross-checked against a second approach.

The reverse capitalisation approach takes market value as its starting point and applies a segmented market yield to reconstruct a theoretical annual rent. It relies on more accessible data (sale transactions) and forces consistency with market value, which is precisely the test the tax authorities will apply: an asset valued at €12m and let for €80,000 a year shows a gross yield of 0.67%, a figure that necessarily calls for justification.

For properties used seasonally, three adjustments are required: weighting of the actual occupancy calendar (high season, mid-season, vacancy) on the basis of the rates observed on comparable properties that are let; deduction of the costs specific to seasonal letting; and a possible allowance for the absence of actual letting.

Finally, consistency between market value and rental value is the point most often overlooked and probably the most important from a defensive standpoint. The same asset cannot simultaneously show a high market value and an unrelated rental value: the inconsistency is itself a signal. A robust report sets out both values and makes explicit the yield that links them; where that yield departs from the market range, the gap must be justified.

Until now, in an IFI or transfer context, the valuation report essentially served to support a declared value. Under the Article 235 ter C regime, it takes on an additional function: characterising the asset’s situation in legal terms. Is the asset within the tax base or outside it? Is the rent charged in line with the market rental value? Where the property is made available to a shareholder, does the gap justify an adjustment, and of what amount?

This characterising function requires the report to have: complete independence from the instructing party (a letter from an agency responsible for marketing the property does not carry the probative value of an independent expert’s report); a recognised methodological framework (IVS, EVS, RICS, REV-TEGoVA and CNEJI certifications); traceable comparables, each identifiable and reconstructable by a third party; and an explicit dual conclusion, market value and rental value, together with their internal consistency.

The tightened Dutreil pact (Article 8 of the 2026 Finance Act) now requires that, within the value of the shares transferred, the portion representing assets not exclusively used for the business activity for at least three years be isolated. This asset-by-asset breakdown once again uses rental value as a classification criterion: a property made available on below-market terms may be regarded as not used for the business.

The contribution-and-sale regime (Article 150-0 B ter, amended by Article 11 of the 2026 Finance Act) tightens the conditions for tax deferral: the reinvestment period is extended to three years, the minimum threshold is set at 70%, there is a five-year holding requirement, and the management of the company’s own real estate is explicitly excluded from the scope of eligible activities. Here again, classifying an asset as business or private partly depends on analysing the economic conditions under which it is used.

The 2026 Finance Act has not created an isolated mechanism: it has put in place a new interpretive framework, in which rental value ceases to be an accounting figure and becomes a self-standing element of tax classification.