My securities are more than 8 years old: allowance for holding period or allowance of €500,000?

The holding period allowance still exists, but it is reserved for securities acquired or subscribed to before January 1, 2018. It only applies if the progressive tax scale is chosen. For securities held for at least 8 years, the standard allowance is 65%. This only reduces income tax, not social security contributions. It cannot be combined with the fixed allowance of €500,000 for a retiring executive: one or the other must be chosen.

Under what conditions does it apply?

Three conditions must be met.

• Date of acquisition. The securities must have been acquired or subscribed for before January 1, 2018. Securities acquired from that date onwards are excluded, except in certain cases.
• Method of taxation. The gain must be taxed according to the progressive tax scale, using the global option (box 2OP). The allowance cannot be applied to gains subject to the flat-rate tax of 12.8 %.
• Length of detention. It is counted up to the date of the transfer.

The allowance reduces the base subject to income tax. Social security contributions (18.6 %) are still calculated on the gain before the allowance.

The standard tax allowance

Enhanced tax relief for certain SMEs

An enhanced tax allowance exists for shares in certain SMEs acquired before 2018. The rates are 50%, 65%, and 85%, depending on the holding period. The 85% rate applies to holdings of 8 years or more. Two additional conditions apply, according to the tax authorities: the shares must have been acquired within 10 years of the SME's creation, and the company must be headquartered in the European Economic Area. Intermediate holding periods and other conditions specific to SMEs are assessed on a case-by-case basis and are not detailed here.

And what about the €500,000 tax allowance for a retiring executive?

These two allowances cannot be combined. The fixed allowance of €500,000 is the same regardless of the tax regime. It only reduces income tax. The allowance proportional to the holding period only exists under the progressive tax scale.

If your securities were acquired before January 1, 2018, and you opt for the progressive tax scale, you can waive the fixed allowance. You will then benefit from the standard or enhanced allowance. Each spouse or civil partner filing jointly has their own fixed allowance on their own securities. Any remaining allowance for one spouse or partner cannot be transferred to the other.

How to compare

With the fixed allowance and the flat tax rate, income tax is 12.8% (% of (gain - €500,000). With the progressive tax scale and the proportional allowance, it is equal to the rate applied to the base amount, after the allowance. The progressive tax scale is therefore lower when:

tax rate applied to the base < tax with fixed allowance ÷ base after proportional allowance

The higher the tax base, the higher the average tax rate applied to it. For a significant gain, the proportional allowance must therefore reduce the tax base to a low level to compete with the fixed allowance. This comparison concerns income tax only. It does not include the portion of the CSG (General Social Contribution) deductible if the taxpayer opts for the progressive tax scale.

Numerical example (fictitious profile)

Situation. Thierry, 64, will sell all the shares of his SME in 2027 to retire. He subscribed to them in 2009 and has held them for over 8 years. The gain is €1,500,000. It is assumed that all the conditions for the fixed allowance are met.

Issue. Keep the fixed allowance of €500,000 with the flat-rate tax, or give up this allowance to opt for the scale with the allowance of 65 %?

Strategy. Compare the income tax in both cases. Social security contributions amount to €279,000 in both cases.

Result.

The option for the tax scale is only advantageous if the average rate applied to the base of €525,000 is less than 24.38 % (€128,000 ÷ €525,000). Above this, the fixed allowance with the flat tax rate is lower.

For comparison, the threshold would be 17.07% with a 50% allowance (based on €750,000), a rate that would apply to securities held for less than 8 years. It would be 56.89% with an 85% allowance (based on €225,000) if the conditions for the enhanced allowance are met.

This profile is fictitious. The figures illustrate the calculation. The income tax scale is not applied here: the result depends on your other income. The calculation ignores the portion of CSG (General Social Contribution) deductible if you opt for the income tax scale. These figures are not indicative of your specific situation.

What changes depending on your situation

• The date of acquisition or subscription of your securities. Securities acquired from January 1, 2018 onwards are not eligible for the tax relief.
• The holding period at the date of the transfer, which sets the rate of the abatement.
• The SME status of the company at the time of acquisition, for the enhanced abatement.
• The amount of the winnings and your other income for the year, which determine the rate applied to the base.
• Your situation as a retiring executive, which opens up the choice with the fixed allowance.
• The global option : it applies to all of your relevant income and earnings.

The rule depends on your situation. No results are guaranteed.