- An insurance payout that compensates you for damage to a building — the cost of repair or reconstruction — is not taxable income, because it restores value rather than creating it
- The exception: any part of the payout that compensates for lost rent while the property is unusable is taxable as ordinary rental income, in the year you receive it
- Insurance premiums themselves are tax-deductible against rental income, but only under the régime réel — not under micro-foncier, where the flat allowance is deemed to cover everything
- A payout for property damage does not affect your future capital gains calculation — it's excluded from the sale price when you eventually sell, and doesn't get added to your acquisition cost either if it already funded a deduction
With wildfires burning across southwest France in 2026, a lot of UK owners of French property — both holiday homes and rental lets — are asking a question that doesn't come up in ordinary years: if the insurance pays out, does any of that money count as taxable income?
The short answer is mostly no, with one important exception for landlords. If you haven't yet made a claim, our guide to how wildfire damage is actually covered by French insurance covers what to do first — this article picks up once a payout is on its way.
The general rule: compensation for damage isn't income
French tax law treats an insurance indemnity for property damage as compensation for a loss, not as income. You've lost value — the insurer is putting you back roughly where you started, not making you better off — so there's nothing to tax.
This is confirmed directly in the tax administration's own guidance on rental income (BOI-RFPI-BASE-10-20): an indemnity is only taxable "if it's destined to finance a deductible charge." Money that pays for reconstruction, repair, or replacement of the building itself is excluded from your taxable rental receipts. As the guidance puts it, an indemnity "intended to compensate the landlord for a real depreciation of their capital is not taxable."
This applies whether you own the property as a second home or let it out — the destruction of the asset itself isn't an income event either way.
The exception: insurance covering lost rent is taxable
If you're a landlord and your policy also pays out to cover the rent you'd have earned while the property is being repaired or rebuilt — a common add-on to French landlord insurance — that portion is taxable.
The same guidance is explicit: "the accessory indemnity intended to compensate for lost rent must, under Article 28 of the CGI, be included in taxable gross receipts." It's taxed in the year you actually receive it (encaissement), exactly like ordinary rent would be.
In practice, this means a single insurance payment can split into two tax treatments: the part rebuilding your wall is untaxed, the part replacing three months of rent you didn't collect is taxed as if you had collected it. If your insurer pays a lump sum without breaking this out, it's worth asking them to itemise it — you need the split to declare correctly, and so does whoever prepares your return.
Are your premiums deductible?
Yes — but only if you're taxed under the régime réel, not micro-foncier.
Under régime réel, insurance premiums on a let property are a deductible charge against your rental income under Article 31, I-1°-a bis of the CGI — and this expressly includes fire cover, storm and water damage, theft, natural disaster cover, and landlord (PNO) and rent-default insurance. You need to have actually paid the premium yourself, in the tax year concerned, and be able to show the policy and payment.
Under micro-foncier, the flat 30% allowance is deemed to cover all your costs, insurance included — you can't separately deduct the premium on top of that allowance. If your insurance costs are significant, this is one of several reasons it can be worth comparing whether régime réel would leave you better off than the simplicity of micro-foncier — see our full guide to declaring UK and French rental income for how the two regimes compare and the 3-year lock-in that applies once you choose.
What happens to your capital gains bill later?
This is the part most people don't think to ask about until they come to sell — and it has two separate, easily confused rules.
The payout doesn't inflate your eventual sale price. When you eventually sell the property, French tax law explicitly excludes insurance indemnities you received for a full or partial loss from the calculation — under Article 150 VA, II of the CGI, they're simply not counted as part of what you received for the property. You're not taxed twice on the same money by having it treated as sale proceeds.
But rebuilding works may not add to your acquisition cost if they were already tax-relieved. Normally, money spent on construction, reconstruction, or improvement can be added to your original purchase price when calculating a capital gain on sale — which reduces the taxable gain. Article 150 VB of the CGI excludes works that have already been "deducted from overall income or from income in another category." If the rebuild was effectively funded by an untaxed insurance payout, the tax authority's position is that letting you also add those costs to your acquisition price would be a double benefit.
A caveat worth flagging honestly: BOFiP doesn't address this exact combination directly — a first-instance administrative court (Tribunal Administratif de Rennes, January 2026) has ruled against adding insurance-funded works to the acquisition price, but this is a single, non-final decision, not settled national guidance. Treat it as the likely direction of travel rather than certain law, and check your specific situation with an accountant before relying on it for a large rebuild.
Common mistakes
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Assuming the whole insurance payout is tax-free. It generally is for property damage — but any part covering lost rent is taxable income, and needs declaring separately.
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Not asking the insurer to itemise the payout. If damage and loss-of-rent compensation arrive as one figure, you can't declare correctly without knowing the split.
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Deducting premiums under micro-foncier. The flat allowance already accounts for this — there's no separate deduction on top of it.
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Assuming rebuilding costs always increase your acquisition price for a future sale. If those costs were funded by an untaxed indemnity, adding them again on top may not be accepted.
Frequently Asked Questions
Do I pay tax on insurance money used to rebuild my French property after fire damage?
No, generally. An indemnity that compensates for damage to the building itself is not taxable — it restores lost value rather than creating income.
Is insurance money that replaces lost rent taxable?
Yes. Any portion of a payout that compensates for rent you didn't collect while the property was unusable is taxable as ordinary rental income, in the year you receive it.
Can I deduct my home insurance premiums against my French rental income?
Only under the régime réel. Under micro-foncier, the flat 30% allowance is deemed to already cover this, so premiums can't be deducted separately.
Does an insurance payout affect capital gains tax when I later sell the property?
It's excluded from your sale price for capital gains purposes, so you aren't taxed on it twice. However, if the payout was used for rebuilding works that were already tax-relieved, those same costs may not also be added to your acquisition price when calculating the gain.
For more on this topic, browse our Deductions, Grants & Financial Support category.
Sources: BOI-RFPI-BASE-10-20 (taxable/non-taxable indemnities, Article 28 and 29 CGI) · BOI-RFPI-BASE-20-60 (deductibility of insurance premiums, Article 31 CGI) · BOI-RFPI-PVI-20-10-10 (exclusion of insurance indemnities from sale price, Article 150 VA CGI) · BOI-RFPI-PVI-20-10-20-20 (works excluded from acquisition price if already relieved, Article 150 VB CGI)