The French government is on a quest to discover €60 billion in savings for the coming year, with part of that amount expected to come from ‘exceptional’ and ‘temporary’ tax increases.
In France, approximately 65,000 high-income households may soon face a new exceptional tax increase aimed at generating an additional €2 billion for the budget in 2025.
In addition to corporations with annual revenues surpassing €1 billion, individuals with high earnings will likely experience tax hikes as of next year if the government’s draft budget for 2025 is approved by the National Assembly, France’s Parliament.
The newly released draft budget outlines €40 billion in public spending cuts, along with an additional €20 billion anticipated from increased taxation and new levies targeting highly profitable companies and individuals earning over €250,000 annually.
These measures aim to reduce the nation’s deficit from over 6% to 5% of GDP by next year, setting a target of 3% by 2029.
How Will Wealthy Individuals Be Affected by Tax Increases in France?
Individuals in France earning €250,000 ($273,000) or couples earning €500,000 face a potential increase in their taxes. High earners are already subject to an exceptional contribution known as the ‘contribution exceptionnelle sur les hauts revenus’ (CEHR), which has been in place temporarily since 2011.
This applies to individuals with monthly earnings of approximately €20,000. Currently, the CEHR charges a rate of 3% for single taxpayers whose taxable income exceeds €250,000, or €500,000 for couples. The rate rises to 4% for income exceeding €500,000 (€1 million for couples), and this pertains only to income above these thresholds, as France employs a progressive tax bracket system.
The proposed budget suggests that affluent taxpayers will incur a higher surcharge on the CEHR, ensuring their minimum average tax rate reaches at least 20% for the next three years.
This tax will be calculated based on taxable income from the previous year and could be applied retroactively, meaning income accrued in 2024 could be taxed if the budget receives parliamentary approval.
In addition, dividends, capital gains, and rental income already face various taxes and contributions. Property ownership also incurs levies once a certain value is surpassed, as it falls under the scope of the French wealth tax. Unlike general wealth taxes, which apply to all assets, the French wealth tax specifically targets property wealth, and residents are taxed on their global property assets.
This wealth tax operates progressively, ranging from 0% to 1.5%, contingent upon total net taxable wealth. Traditionally, private property investments are favored in France. If these properties generate income, the overall tax burden can be steep. For substantial incomes, this means not only facing the highest income tax bracket of 45%, but also the exceptional contribution of up to 4%, plus an additional 17.2% social contribution, bringing the total tax burden to approximately 66.2%.
Increasing taxes on the wealthiest could evoke memories of François Hollande’s 2012 initiative, where France’s constitutional body, the Conseil Constitutionnel, thwarted a proposed 75% income tax increase for the wealthy.
Are Wealthy Individuals Considering Leaving France Due to Increased Taxes?
Following the June snap elections, where the left, known for their tax-the-rich agenda, gained ground, some wealthy citizens have begun contemplating relocation. However, experts had advised Euronews Business that they had not noticed a significant movement of the affluent leaving the country even before the draft budget was unveiled.
Wealth and tax attorney Paulo Laurie from RSM France remarked, “Some clients have expressed concerns, saying they might consider leaving, but so far, it has simply been talk.”
The landscape for high-end French real estate has not significantly shifted post-elections, according to international real estate consultancy Knight Frank. Partner Jack Harris noted, “Despite impending tax modifications, interest remains strong for prime and ultra-prime properties across France. Recent transactions exceeding €20 million underscore persistent confidence in this segment of the market.”
While Switzerland and Monaco are popular options for those seeking tax relief outside of France, there is also a growing interest in countries like Italy, which entice with appealing lifestyles and favorable fiscal policies.
However, those contemplating a departure from France face obstacles, primarily the ‘exit tax’, which covers income tax and social security contributions on unrealized capital gains. Assets like real estate and life insurance, however, are exempt from this exit tax.
The current flat tax rate for capital gains, dividends, and interest is 30%. If an individual plans to leave France and possesses over €800,000 in such assets, they’re required to declare potential capital gains. For instance, if a stock purchased for €500,000 appreciates to €1 million, the holder must declare a capital gain of €500,000, which may not be taxed immediately but could be subject to taxation if sold within a specific time frame after departure.
Depending on the jurisdiction of their new residence, expatriates may also have to provide various guarantees, especially if relocating to Switzerland versus Spain, which has different requirements.
For wealthy individuals, options may be limited. Some may look to shift assets abroad, but this route may not be accessible to everyone, as French residents are taxed on their worldwide assets.
Although there have been anecdotes of wealth advisors swamped with inquiries about relocation, there is skepticism about whether many high-net-worth individuals will actually take the plunge. “French citizens have a deep affection for their country and prefer to remain,” Laurie contended. This sentiment is resonated by billionaire Xavier Niel, who stated, “I’ll be the last to leave,” affirming his commitment to France even if tax rates were to soar to 90%.
Photo credit & article inspired by: Euronews
