How the wealthy in France is hit by the tax hikes

In France, some 65,000 high-income households could be facing a new exceptional tax hike which is supposed to bring in a total of €2bn to the budget in 2025.

Apart from companies which have a turnover of more than €1bn, individuals with high income are also facing tax hikes as of next year if the government’s draft budget for 2025 is accepted by the National Assembly (the French Parliament). 

The newly presented draft budget plan contains €40bn in public spending cuts and a further €20 billion, which is partially expected from raising taxes and introducing new, exceptional levies for companies with high profits and wealthy people, with an annual income of more than €250,000.

The measures in total are aimed to bring the country’s deficit to 5% of its GDP next year.

The French minority government is under huge pressure to lower the current, more than 6%, deficit to 5% of the GDP in 2025 and 3% by 2029.

What taxes are concerning the wealthy in France?

French individuals earning €250,000 ($273,000) annually, or couples earning double that amount, are facing a temporarily increased tax.

However, people with such income already pay an exceptional contribution, called ‘contribution exceptionnelle sur les hauts revenus’  (CEHR). This was put in place in 2011 temporarily. 

This concerns people with a monthly salary of around €20,000.

This levy is currently 3% for single people whose taxable income exceeds €250,000, or €500,000 for a couple. It increases to 4% for income more than €500,000 (€1m for a couple). This percentage concerns the income above these amounts, as in France income is currently taxed in a progressive bracket system. 

The draft budget suggests that the wealthy pay a surplus on the current CEHR in a way that their minimum average rate is at least 20% for a period of three years.

The tax is paid after the reference taxable income and it can be retrospective, meaning that income earned in 2024 could be subject to this tax if the budget plans are approved by the French parliament.

Meanwhile, dividends, capital gains, and income from rentals are already subject to further contributions and taxes. 

On top of this, owning property also costs in levies, after a certain value, that is subject to the French wealth tax. (As opposed to wealth taxes in general, in France, the so-called wealth tax is paid only after property assets, however, French residents need to pay after their property worldwide.) 

Wealth tax is also a progressive one, ranging from 0% to 1.5%, depending on the total net taxable wealth.

French traditionally prefer property investment, and if that property is rented out, the overall income tax is already considerable. If said income is high enough, it is not only subject to the current highest level of the income tax, which is 45%, the exceptional contribution, which can get as high as 4% but also subject to a 17.2% social contribution.

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This currently adds up to a total of 66.2%. An attempt to raise further the current taxes on the income of the wealthiest could remind many of Francois Hollande’s efforts in 2012, when France’s constitutional watchdog, the Conseil Constitutionnel prohibited a pending 75% income tax rise on France’s wealthiest people.

Would the increased tax drive away wealthy people from France?

Rich people had already anticipated some of these changes in June when France had snap elections and the left, known for their ideas to tax the wealthy, emerged as a winner after the second round. 

There have been emerging reports about how wealthy individuals in France are considering leaving the country, but experts told Euronews Business before the draft budget and the exact numbers were published that they didn’t see a strong movement.

“I’ve had some clients raising concerns about, ‘okay, I might leave’,” said wealth and tax lawyer Paulo Laurie from RSM France, adding that “it’s just raising concern, actually nothing has been done”. 

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Investment in French real estate, for instance, did not alter much after the elections, according to global real estate consultancy Knight Frank. Jack Harris, Partner at the firm said: “Despite the proposed tax changes, we continue to see strong demand for prime and ultra-prime properties across France. Notably, transactions exceeding €20,000,000 have been recorded post-election, demonstrating ongoing confidence in the market.”

For those who choose real-estate investments elsewhere, near France “Switzerland and Monaco remain popular choices, but we are also seeing increasing interest in Italy, which offers a desirable lifestyle and attractive fiscal policies”, said Harris.

For those who consider giving up their assets and life in Europe’s second-biggest economy, the options are limited: “because the problem is when you leave France, you are subject to exit tax”, said Laurie. 

The exit tax includes income tax and social security contributions on unrealised capital gains, a business owner’s business if sold, comes under this category, but real-estate or life insurance, for instance, are not subject to exit tax.

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Currently, there is a flat tax rate of 30% on capital gains, dividends and interests. If an individual wants to leave France and owns more than €800,000 worth of them, they have to declare the capital gain. Simply put, this is the price difference of an asset, such as a stock of a company, between the day of buying that and the day of leaving the country. 

“So for example, you bought them for 500,000. They are now worth one million. You have to declare a capital gain of 500,000,” said Laurie adding that it is not directly taxed, “but could be if you decided to sell said assets for the next two or five years – depending on the total value of assets – after the date you leave.” 

Often, depending on the case and the country where people declare they want to move, it is necessary to put in place a certain type of security, which can be cash deposits in case they sell in the coming years.

“For the exit tax, the rules change depending on which country you’re going to move to”, added Laurie. “Move to Switzerland. You have to give a lot of guarantees. Move to Spain. You don’t have to give any, it’s case by case each time”.

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So what is left realistically for the wealthy to do? “What might happen, is they might move some assets abroad. But that’s not accessible to everyone because if you are a French resident, your tax on worldwide assets anyway. 

While there are reports about wealth advisers flooded with requests to help leave the country, there are doubts that many of the richest would really move.

“French people love France. They want to stay in France,” said Laurie who is confident that tax hikes would not drive away many.

This sentiment is echoed elsewhere, for instance, French billionaire Xavier Niel said to RTL, “I’ll be the last to leave,” adding that he stays “even if there is 90% tax” on his income.”

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