The French Exit Tax can represent a significant challenge for internationally mobile clients with substantial investment portfolios.
By investing through an insurance-based wealth solution from the outset, clients can mitigate this key tax consequence associated with potential mobility – noting that UHNW individuals change jurisdiction on average three times in their lifetime. The key lies in the legal distinction between direct ownership of securities and the policyholder’s creditor claim under an insurance contract.
Why It Matters Now
Global mobility among high‑net‑worth (HNW) and ultra‑high‑net‑worth (UHNW) clients continues to rise. Moves to attractive destinations such as Portugal, Italy, or Switzerland remain common, but often trigger complex tax consequences.
The French Exit Tax, designed to capture unrealised gains when residents leave France, can create liquidity pressure and reduce cross‑border flexibility.
Understanding this risk, and the strategies available to alleviate it, is essential to preserving client assets and trust.
Who Is in Scope
The Exit Tax applies to individuals who:
- Have been French tax residents for at least six of the 10 years prior to departure; and
- Hold either:
- Financial assets exceeding €800,000, or
- At least 50% of the rights in a company.
What Becomes Taxable at Departure
- Unrealised capital gains on securities
- Earn-out rights
- Deferred or suspended capital gains
Tax is either payable immediately or subject to deferral, depending on the destination country and applicable rules.
Planning With Insurance‑Based Wealth Solutions
A crucial distinction exists in French tax law:
- Directly held securities fall within the scope of the Exit Tax.
- Policyholder claims under a life insurance policy do not.
When a client invests cash into a unit-linked life insurance contract and builds their portfolio within it, the assets are owned by the insurer and not directly by the client. Instead, the policyholder holds a personal claim (créance) against the insurer.
Because French tax law does not include such claims in the Exit Tax base, assets held within the insurance contract are outside the scope. This can significantly reduce the client’s exposure when leaving France.