There are various pros and cons to consider when weighing up real estate vs capital investments. Many people with capital to invest look at securities such as shares or bond funds, while others are attracted to real estate. Which is right for you? And how do the tax implications compare?
This article does not attempt to try and predict which investment would give you the most returns, as the best performing asset class varies year by year and is notoriously difficult to forecast. Rather we highlight various aspects you need to consider when evaluating your options.
While you should not ‘let the tax tail wag the investment dog’ – the starting point with investments should be to ensure your portfolio is well diversified and designed to suit your situation, needs, goals, time horizon and risk tolerance – it is also important to understand and weigh up the tax implications as these can impact your returns.
If you already own a second property or more, or if you’ve moved to France permanently but maintain a UK property, is this in your best interest? And what about your heirs?
Tax implications for UK nationals in France
Capital gains tax (CGT)
When you sell a property that is your habitual residence at the time, the gains are exempt from capital gains tax.
Other real estate gains are taxed at a flat rate of 19%, plus surtaxes, plus social charges amounting to 17.2% in 2026 – but if you have Form S1 you will benefit from a reduced rate of 7.5% of social charges. This makes a maximum of 42.2%. The surtaxes kick in for gains over €50,000 and range from 2% to 6%.
The tax and social charges are reduced for the length of property ownership, starting from the sixth year of ownership. Full exemption is achieved after 22 years for capital gains tax, but the social charges reductions are weighted towards the last seven years with full exemption after 30.
If you are resident in France and sell UK property, you are assessed for tax in both countries. The taper relief applies for the French tax, while UK tax is calculated on gains from 2015 or 2019, depending on whether it is residential or commercial property. The gain will be taxable in France, with a credit for any UK tax paid on disposal.
In contrast, gains made on the sale of capital investments, such as shares and other moveable assets, are taxed at a flat income tax rate of 12.8%, plus social charges. The amount of social charges to be paid varies. If you have an S1 form, it is 7.5%. If you sell shares held directly, social charges total 18.6% in 2026, but gains made within an assurance-vie remain at 17.2%.
These gains are treated as investment income and taxed alongside income such as interest and dividends. This tax treatment also applies to income generated from any UK investments you may have. Gains made on the disposal of capital investments are generally taxed in your country of residence, unlike property where both tax regimes come into play.
Income tax
Where you choose to rent out a French property, the net rental income is added to your other general income for the year and taxed at the scale rates of income tax, starting at 11% for income over €11,600 and rising to 45% for income over €181,917 (as at January 2026 subject to final approval of France 2026 budget). You will additionally pay 17.2% social charges unless you have a Form S1, in which case social charges on the net rental income amount to 7.5%.
Rental income from a UK property is directly taxed in the UK. Although it is not directly taxed in France, you must include it as part of your taxable income for the year and then a credit equal to the French tax and social charges applicable is allowed.
As mentioned above, most income generated from your capital investments (interest earnings, dividends, capital gains on shares etc), is taxed at a fixed 31.4% including social charges without a form S1, or 20.3% with an S1. These rates do not apply to income generated from a plan d’épargne logement, compte épargne logement and plan épargne populaire.
Wealth tax
There is no contest between the two types of assets here, since French wealth tax only applies to real estate assets. Any other wealth, including shares, bonds, assurance vie etc, is not liable to wealth tax.
French residents are taxed on the value of their household’s worldwide real estate assets each year. This includes all residences (though the value of a main home can be reduced by 30% for wealth tax purposes), holiday homes and investment properties, whether owned directly or indirectly. Non-residents are liable on French real estate, including any rights over property situated in France.
However, you will only pay wealth tax if your total taxable property assets are worth €1.3 million or more. There is a €800,000 tax-free allowance, with rates then ranging from 0.5% to 1.5%.
Succession tax
If you are resident in France when you die, your worldwide estate is liable to French succession tax – each beneficiary pays tax on the amount they receive. Spouses and PACs partners are exempt on inheritances.
In this case, whether they receive investments, property or other assets makes little difference, as the tax is calculated on the value of their inheritance. The value of your main home can be reduced by 20%, provided your spouse/PACs partner or minor children continue to live in it, but this doesn’t apply to second or investment property.
However, there are more opportunities to reduce the succession tax liability for your heirs on capital investments than there are for real estate. For example, when holding equity and bond funds within an assurance-vie.
Any assets in the UK are also assessed for UK inheritance tax (IHT) and from 2027 this will include pension funds. If you own a UK property which is currently below the IHT threshold available to you and your spouse, your pensions are likely to bring your estate into the UK inheritance tax net. Reconsidering what assets you retain in the UK could noticeably improve your family’s inheritance.
Investment considerations
While it is certainly worth weighing up the tax implications, there are other factors to consider.
Liquidity – How long will you be able to hold the asset before you need to sell? What if you need the capital earlier than expected?
While property can be a solid investment, it locks your money away in a highly illiquid way. If you need to release funds, you may not be able to sell quickly or for the right price. And if you cannot sell just part of a property if you need a certain amount. In contrast, if your portfolio includes equity and bond funds, you can usually sell them fairly quickly and just the amount you need, not the whole investment.
Diversification – While both shares and property have the potential to provide good returns over time, there are always risks with investments. And the key to reducing risk is diversification.
By spreading across different regions, market sectors and asset types – including equities, government and corporate bonds, cash and property – your capital has the chance to produce positive returns over time without being vulnerable to any single area under-performing. If you already own one or two properties, buying another could make you overexposed to this one asset class, increasing risk, especially if you do not own many equity or bond holdings.
For most people, it is easier to obtain effective diversification though capital investments (which can include shares in property funds), than with bricks and mortar. Financial assets also offer more flexibility to change strategy in line with market or personal developments.
Ultimately, successful investing is about having a strategy specifically based around your circumstances, time horizon, needs, aims and risk tolerance. When you are thinking of buying a new asset, consider whether this is a suitable investment for you and how it fits in with your portfolio, and also understand and weigh up the tax implications.
With personalised advice, you can reduce your exposure to risk while ensuring you hold all your assets – in France and elsewhere – in the most tax-efficient way possible.
Blevins Franks provide personalised advice, allowing you to reduce risk exposure while ensuring all assets are held – in France and elsewhere – in the most tax-efficient way possible.
Contact us today to speak with one of our specialist advisers
