With no majority in the National Assembly, a budget deficit and abysmal national debt, preparing and voting on the Finance Bill for 2025 is going to prove particularly perilous. In the longer term, it is the country’s budgetary stability that is at stake, requiring us to anticipate possible tax increases now, particularly for households.
At the time of writing, the name of the future Prime Minister has just been announced: Michel Barnier, an experienced politician from the ranks of the moderate right. In the absence of a clear majority in the National Assembly, the future Barnier government will not be able to impose its fiscal policy and will have to make concessions to its allies, even accepting tax increases imposed by the opposition parties. In this context, and given the very tight deadlines, the new government will most likely have to adopt the draft budget prepared by the outgoing team and leave it up to the members of parliament to amend it during the legislative debate.
The next few weeks, if not months, should therefore give us a clearer picture, even if the battle – indeed the ‘legislative war’ – that is about to take place in the National Assembly will undoubtedly have its share of (un)pleasant surprises in store for French taxpayers.
When it comes to tax revenues, a number of “ideas” were put forward during the last elections, particularly by the left-wing parties (Nouveau Front Populaire). These include, but are not limited to: the re-introduction of a tax on financial wealth; the repeal of the 30% flat tax on financial income; an increase in the income tax rate scale; an increase in the rate of social security contributions; a tax on corporate super-profits; tougher conditions for “exit tax”; and an increase in the rate of the gift and inheritance taxes on large estates.
We will not dwell on the question of gift or inheritance tax, since, despite the recurrent debates about whether they should be reduced or increased, it is far too uncertain to anticipate anything on the subject today, especially as this type of taxation does not allow a government to rapidly increase tax revenues, at least when it comes to inheritance tax.
This could be otherwise for the gift tax, with the provision of a “window” of a few months to a few years for drastic reductions in taxation procedures (base or rate). Such a measure to anticipate transfers would undoubtedly accelerate tax receipts while injecting capital into the younger generations, who are more likely to consume. It could also revive a property market that is currently at a partial standstill.
However, this would be an eminently political decision, difficult to make in a parliamentary context where the government does not have a majority in the National Assembly. On the subject of eminently political decisions, the possibility of reinstating the tax on financial wealth also needs to be addressed, so that it can be managed in the best possible way when the time comes.
With this in mind, it is advisable to anticipate as of now the possible return of the ISF (wealth tax) in wealth planning schemes by updating the concepts of “professional assets”, “income ceiling”, “interposition of holding companies” etc. Such anticipation should make it possible to put in place long-term, secure schemes and, above all, to avoid having to dismantle structures mainly intended for the long term, with the resulting costs.
The flat-rate tax of 30% (including social security contributions of 17.2%) on financial income (dividends and interest) and on gains from the sale of securities has been a real advantage for private investors since 2018. Let’s not forget that previously, this financial income was taxed at the same rate as any other income, at a marginal rate of 45%, excluding social security contributions (i.e. 62.2% in total).
In order to anticipate any changes in the taxation of savings, it may be advisable, where possible – particularly in family-owned companies – to distribute reserves to shareholders, who may be required to leave the money in the company (shareholder current account) so as not to strain cash flow. Capital transactions can also be used to externalise capital gains.
However, it should be borne in mind that transactions carried out during 2024 could nevertheless be affected by a tax reform passed at the end of 2024. This is known as “minor retroactivity”, which is very unfair but considered legal by the French courts.
For example, if a dividend distribution is made in October 2024, under the 30% flat-rate tax regime, but an increase in the social security contribution is passed in November 2024, raising it from 17.2% to 20%, the tax rate will be increased retroactively by 2.8% over the whole of 2024, to reach 32.8% in the end. It is therefore advisable to wait until the legislative situation is definitively established, at the end of November / beginning of December, to effect these transactions in complete security.
Finally, if you are planning to transfer your residence abroad, it may make sense to relocate before 31 December 2024 rather than during 2025. Following the reductions introduced at the beginning of 2019, the “exit tax” on movable assets dropped from 15 years to 5 years (or even 2 years). It is not certain that such a reduction will last, nor is it certain that other measures more restrictive to transfers of residence will not be introduced, particularly in the context of large tax increases.
On the other hand, we rule out the possibility of introducing taxation on the basis of nationality, as has recently been suggested. Such a measure would be particularly complex and time-consuming to implement, requiring in particular a revision of all the tax treaties signed by France.
However, what cannot be ruled out is the introduction of a droit de suite (follow-through legislation) in the event of a transfer of residence to a country with an attractive tax regime – such as already exists in several European countries. This droit de suite consists of maintaining the taxation of a taxpayer in the country of departure, as if he or she had remained resident, for a variable period (3, 5, 8 years, for example), if the country of destination is qualified as a tax haven, i.e. if it offers very favourable tax conditions compared with those of the country of departure (in terms of tax base or rates, or even non-taxation of wealth, for example).
In conclusion, given the current and future risks and uncertainties, while it may be tempting to think about relocating, prospective relocators should bear in mind the issues of exit tax, the introduction of a possible droit de suite and, of course, the legal risks in the event of fictitious or abusive relocation.