- A deposit you keep after a buyer withdraws from a property sale is taxable income in France — it doesn't count as part of your property's capital gain
- French case law treats it as BNC income (bénéfices non commerciaux, a category for one-off professional-style receipts) under Article 92 of the tax code, because it compensates you for taking the property off the market, not simply for a broken promise
- This applies specifically when the deposit was paid under a promesse unilatérale de vente — a one-sided option where only you, the seller, were bound
- It's declared as non-professional BNC income, generally in Box 5KU on Form 2042 C PRO (5LU or 5MU for a second or third declarant in the same household) — but confirm this with an accountant before filing, since a one-off receipt like this can interact with your wider tax situation in ways worth checking
A buyer pulls out of a sale days before completion, and the notaire releases their deposit to you rather than back to them. It feels like compensation, not income — you didn't sell anything, nothing changed hands except a payment for wasted time. France doesn't see it that way, and the way it does see it is genuinely not obvious.
If you're new to how French property sales work more generally, see How the French Tax System Works: A Plain-English Overview for the wider context before diving into this narrower question.
What This Payment Actually Is
When a French property sale starts with a promesse unilatérale de vente — a one-sided pre-contract where you, the seller, commit to sell to one specific buyer at an agreed price for a set period — the buyer typically pays a sum called an indemnité d'immobilisation, usually 5–10% of the price. It sits with the notaire, held in escrow (a séquestre).
If the sale goes through, that sum is simply credited against the purchase price — fiscally neutral, nothing to declare. But if the buyer walks away after all the suspensive conditions (mortgage approval, planning checks, and so on) have already been satisfied — and outside the standard 10-day cooling-off period buyers get automatically — the money doesn't go back to them. It's yours to keep, as compensation for having taken the property off the market for that buyer and no one else. And it's that retained sum that needs declaring.
If this happens more than once — a second buyer withdraws on a later attempt to sell the same property — the same rules apply to each deposit separately, on its own facts.
Why It's Not a Capital Gain
The instinct is to lump this in with the property sale itself. It isn't part of the sale. No transfer of ownership happened — the property is still yours.
French administrative case law has settled this question specifically. The Conseil d'État — France's highest administrative court — ruled that a retained indemnité d'immobilisation is taxable as BNC income (bénéfices non commerciaux, broadly "non-commercial profits" — a catch-all category for income that isn't wages, rent, or investment return) rather than as a capital gain or as untaxed damages.
The reasoning is specific: the court treated the payment as compensation for a service — granting the buyer an exclusive option and taking the property off the market for them — rather than simple compensation for a broken promise. That distinction is what pulls it into the BNC category under Article 92 of the French tax code, the general clause covering profit-making activity that doesn't fit any other category. The label the contract uses for the payment doesn't decide the outcome — substance controls, not the wording.
This is a separate question from how the property's own gain is taxed once you do complete a sale. If your home genuinely was your primary residence, that gain is likely exempt in full — see Selling Your Primary Residence in France: Is the Money Taxable?. If it wasn't your primary residence — a second home, a rental, an inherited property — see Capital Gains on a French Property Sale: How It's Calculated and Declared for the actual rate and holding-period allowance. If the property in question is in the UK rather than France, see Capital Gains on a UK Property Sale as a French Resident instead — the forfeited-deposit treatment on this page is specific to French property transactions.
Why the Type of Pre-Contract Matters
This treatment applies to a promesse unilatérale de vente specifically — where only you, as seller, were legally bound to sell, and the buyer alone held the option to walk away, at the cost of their deposit.
A compromis de vente works differently: both sides are bound to complete, and it's usually the clause pénale (a contractual penalty clause) rather than an indemnité d'immobilisation that applies if one side backs out. Whether a retained sum under that kind of contract gets the same BNC treatment is a genuinely separate question, since a two-sided contract changes the legal reasoning the courts have applied. If your paperwork used a compromis rather than a promesse, don't assume the position is identical — check the actual wording with your notaire.
How to Declare It
Because this is BNC income and not part of your property gain, it goes on a different part of your return from the plus-value calculation your notaire will have already handled for the completed sale.
A retained deposit like this is usually a one-off event rather than a recurring professional activity, so it's declared as non-professional BNC (as opposed to the micro-BNC regime used by people running an ongoing freelance or consulting activity, which uses a different box). On Form 2042 C PRO, that's generally Box 5KU — the box used to report gross receipts under the special declarative regime for non-professional non-commercial income, without applying any deduction yourself. If your spouse or partner is the one declaring it, the equivalent boxes are 5LU (second declarant) or 5MU (third).
The tax administration then applies the standard flat-rate deduction automatically once you've entered the gross amount — you don't calculate the deduction yourself.
This is still worth confirming with an accountant or your notaire before you file, particularly if you have any other BNC income in the same year, since that can change which box applies or how the amounts combine. A misdeclared occasional BNC receipt is much easier to fix before submission than after.
What to Do Now
- Keep the notaire's release statement for the forfeited deposit — you'll need the exact amount and date for your return.
- Don't fold it into your property sale's plus-value figure. It's a separate declaration, not part of the capital gain.
- Check which type of pre-contract the buyer signed — promesse unilatérale or compromis — since that affects which tax treatment applies.
- Declare the gross amount in Box 5KU on Form 2042 C PRO (5LU/5MU for a second or third declarant), but confirm this with an accountant or your notaire before filing, given how situation-specific non-professional BNC income can be.
- If this happens again on a later sale attempt, treat each forfeited deposit as its own declaration — the same rules apply each time, but the amount and year need recording separately.
For more on getting property-sale tax right, see the Strategies & Pitfalls category.
Common Mistakes
- Assuming a forfeited deposit is simply tax-free compensation. Case law treats it as taxable BNC income specifically because it compensates for the service of taking the property off the market — not as untouchable damages.
- Folding the deposit into the property's capital gain figure. It's a separate category of income entirely, taxed under different rules from the plus-value on the sale itself.
- Assuming the label in the contract settles the tax treatment. Courts look at substance — was this really compensation for a service, or genuinely just damages for a broken promise — not just what the paperwork called it.
- Treating a compromis de vente penalty the same as an indemnité d'immobilisation. The two pre-contract types work differently, and the case law described here specifically concerns the promesse unilatérale structure.
- Entering the amount in Box 5HQ instead of 5KU. 5HQ is for professional micro-BNC activity — an ongoing freelance or consulting business. A one-off forfeited deposit is non-professional BNC, which goes in 5KU (or 5LU/5MU for a second or third declarant) instead.
Frequently Asked Questions
I kept a buyer's deposit after they pulled out. Do I owe tax on it?
Yes, in most cases. French case law treats a retained indemnité d'immobilisation as taxable income under the BNC (bénéfices non commerciaux) category, not as tax-free compensation — because it's treated as payment for a service (holding the property exclusively for that buyer), not simply damages for a broken agreement.
Is the forfeited deposit part of my property's capital gain calculation?
No. It's a separate category of income from the plus-value on the eventual sale. The property gain is calculated on what you actually sold for; the forfeited deposit is a distinct receipt, taxed as BNC income under Article 92 of the tax code.
Does it matter what the contract called the payment?
Yes and no. What matters most is the substance of the arrangement — specifically whether it was a one-sided promesse unilatérale de vente where you alone were bound to sell. The label alone doesn't decide the tax treatment, but the type of pre-contract does affect which rules apply.
What if the buyer pulled out during the standard cooling-off period?
If a buyer withdraws within the standard 10-day reflection period, or because a suspensive condition (like mortgage refusal) genuinely wasn't met, the deposit is normally returned to them in full — there's nothing for you to keep or declare in that scenario.
What if this happens with more than one buyer on the same property?
The same rules apply each time. Each forfeited deposit is its own BNC receipt, declared for the tax year it was retained — there's no different treatment for a second or third occurrence, just a separate declaration for each one.
Where exactly do I declare this on my French tax return?
As non-professional BNC income, generally in Box 5KU on Form 2042 C PRO — the box for gross receipts under the special declarative regime for non-professional non-commercial income (5LU or 5MU if a second or third household declarant is the one reporting it). It's still worth confirming this with an accountant or your notaire before filing, since a one-off receipt like this can interact with your wider tax situation in ways worth checking.
Sources: Le mot du mois : Indemnité d'immobilisation — Chambre des Notaires de Paris (explains the indemnité d'immobilisation mechanism and when it is retained by the seller) · Conseil d'État, 19 February 2014, n°354380 — Légifrance (primary ruling classifying a retained indemnité d'immobilisation as non-commercial profits/BNC income, on the basis that it compensates a service rendered — reserving the property and abstaining from selling to third parties — rather than simple damages) · Form 2042 C PRO and its official notice (confirms Box 5KU as the non-professional micro-BNC gross-receipts box, distinct from the professional 5HQ box) — this specific box reference is corroborated by multiple independent tax-advisory sources rather than a directly quoted primary form extract, so it's worth a final confirmation with an accountant on your own return