France 2025 budget and potential tax reforms

The first draft of the France 2025 budget was presented by Prime Minister Michael Barnier’s government on 10 October 2024. 

This proposed budget aimed to reduce the public deficit to 5% of gross domestic product (GDP). It included €60 billion in spending cuts and tax increases, which the government explained were necessary to stabilise the public finances.

Since M. Barnier does not have a majority in parliament, his budget faces a number of political challenges.  We have already seen various tax amendments added, and there will be more debates and changes before the 2025 projet de loi de finances is finalised.

Although the Assemblée Nationale has agreed and voted on amendments, due to the way the French constitutional system works, it is possible that only those favoured by the government will be included in the final budget.

The Prime Minster can use article 49.3 of the French constitution to pass his budget without a vote, or apply it by way of “ordonnance” if parliament cannot reach a final decision within 70 days.

French budgets are usually finalised at the end of December.

Income tax rates for 2024 income

The income tax bands will be adjusted for inflation for income received in 2024 (declared in 2025).

Extension to additional tax on ‘high income’

France already applies an additional charge on higher incomes – the Contribution exceptionnelle sur les hauts revenus – as follows:

• For individuals – 3% on income over €250,000 | 4% on income exceeding €500,000
• For couples – 3% on income over €500,000 | 4% on income exceeding €1,000,000

The government’s draft budget proposed a further additional charge – Contribution différentielle sur les hauts revenus – for households subject to the existing additional charge. The measure aims to ensure that high income households are subject to a minimum tax of 20%. If the effective tax rate after taking income tax and the existing additional charge into account falls below 20%, the new contribution will be payable to meet the minimum 20% liability.

While this measure targets higher earners, it will also catch those taking a large lump sum payment from their pension. If you are considering this, take personalised advice.

Under the government’s original proposals, this new charge would apply for 2024 to 2026 income. A ‘taper relief’ measure would benefit single taxpayers with taxable income below €330,000 or €660,000 for a couple.

However, since then the Assemblée Nationale voted to:

• Make the new Contribution différentielle sur les hauts revenus permanent as opposed to temporary.
• Remove some of its proposed tax reliefs.

Proposed tax increase for investment income

Since 2018, the Prélèvement Forfaitaire Unique (PFU) applies a 30% flat rate of tax on investment income.  As this covers both income tax (12.8%) and social charges (17.2%), it is beneficial for those with higher investment income. Lower earners can opt for the scale rates of tax and social charges.

One of the amendments voted on by the Assemblée Nationale is to increase the income tax element to 15.8%.   This would mean that the PFU increases to 33%.

Remember that if you are covered by Form S1, the social charges element is reduced to 7.5%.  So even with the extra 3%, your PFU would be 23.3%.

Capital gains tax on real estate

Property meeting the main home criteria is exempt from capital gains tax, but all other real estate faces tax of between 19% and 26%, plus 17.2% social charges.

France, however, currently operates a taper relief according to length of ownership. The gain is gradually reduced for tax purposes, to the point where it becomes fully exempt after owning it for 22 years. And, after 30 years it’s also exempt from social charges.

The government’s proposed budget did not include any reforms to this regime, but the Assemblée Nationale later voted to remove this advantageous relief and replace it with one based on inflation.

Succession tax

President Emmanuel Macron has previously pledged to reduce succession taxes by increasing the tax-free deduction for inheritances between parents and children and lowering tax rates for other relatives, such as stepchildren.

He has been unable to implement this so far, and M Barnier’s draft budget did not include succession tax either.  However, since then, the Assemblée Nationale has agreed to double the allowances for siblings, nephews, nieces, children, and grandchildren of the spouse. This was a welcome proposal, though they did also vote to increase the top succession tax rate from 45% to 49%.

Assurance vie

Another amendment made by the Assemblée Nationale proposes changes to the tax treatment of policies set up before the age of 70. Under the current rules, when the policy pays out to beneficiaries, payments up to €700,000 after the allowance of €152,500 are taxed at 20%, with the balance taxed at 31.25%. If the amendment is adopted, payments up to €552,324 after the allowance would be taxed at 20%, with the balance taxed at rates of up to 45%.

No proposed changes to social charges or property wealth tax

Social charges – So far, we are not aware of any proposed reforms to social charges.  The rates would therefore remain the same as this year:  9.7% for employment income; 9.1% for pension income (7.4% for very low incomes), and 17.2% for investment income.  As of now, S1 holders will be exempt on pension income and pay the reduced 7.5% on investment and property income.

Real estate wealth tax (IFI) – The current threshold of €1,300,000 will stay in place for 2025, and no changes are proposed to the scale rates of wealth tax.

France 2025 budget – what next?

There is still some way to go before the budget is finalised and approved, and we expect more developments along the way.  These could be around the proposals so far, and/or adding new elements. If consensus cannot be reached, it is possible the government could use the constitution to push through its preferred version – it is possible that none of, or only a few of, the Assemblée Nationale amendments will be adopted and form part of the final 2025 budget.

We may not know the final outcome until the end of the year.  Please do not hesitate to get in touch with our France advisers if you would like to discuss the budget proposals, or if you feel it is time to review your tax planning to ensure it is up to date and as effective as it could be.

Contact Blevins Franks today.