The Finance Committee has approved a “tax justice” measure targeting wealthy individuals, following a rise in capital income tax and maintaining a minimum tax for affluent taxpayers. Proposed amendments include increasing allowances for indirect-line heirs and introducing new exemptions for stepchildren and stepgrandchildren. Additionally, a controversial plan to raise the inheritance tax threshold to 49% for large estates has emerged. However, the proposed measures must pass further scrutiny in the House before final adoption.
Following the increase in the flat tax on capital income and the continuation of the wealth tax minimum for high earners, a new measure aimed at “tax justice” has received approval from deputies on the Finance Committee. This week, committee members have been reviewing and amending the government’s proposal for the 2025 budget. Throughout these discussions, various alliances have formed and dissolved. One outcome has been the approval of several amendments focused on a specific group: the wealthiest individuals.
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On Thursday, deputies from the Ensemble pour la République (EPR) party contributed further proposals by suggesting the need to “modernize the taxation of inheritances and donations.” This amendment, introduced by David Amiel, an EPR deputy from the Finance Committee, has been accepted by the committee. The proposal consists of two main components. First, it aims to increase exemptions for what are termed “indirect” lines. This amendment seeks to double the allowances for siblings, nephews, and nieces, while also introducing new allowances for stepchildren and step-grandchildren regarding donations.
At present, direct line beneficiaries (children) can claim an allowance of up to 100,000 euros. In contrast, indirect line beneficiaries receive only 15,932 euros for siblings and 7,967 euros for nephews and nieces. Furthermore, there are no existing allowances for stepchildren or step-grandchildren; thus, the proposal recommends establishing a new allowance set at 31,865 euros for them.
Concerns Over Tax Calibration
On a more contentious note, to fund this initial component, the deputies intend to “simultaneously increase the tax rate to 49% for estates exceeding 3,611,354 euros.” This effectively introduces a new inheritance tax bracket. Currently, the highest tax rate under the General Tax Code applies to inheritances over 1,805,677 euros, which are taxed at 45%. It’s worth noting that inheritance tax revenue has more than doubled from 2011 to 2023, reaching 16.6 billion euros, primarily due to rising real estate values leading up to 2022.
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Despite the committee’s approval, the EPR deputies’ proposal is far from finalized. All committee votes will need to be reconsidered in the House, starting from the original version of the bill. Many anticipate that the budget may be subject to the 49.3 procedure, raising questions about whether the government will choose to include this measure within the fundamental text for which it will assume responsibility.
As of now, “the position of Matignon or Bercy remains unknown,” suggests a member of the Macronist party. “Last year, we collaborated closely with the Ministry of the Economy’s services during the review process, particularly regarding the quantification of various proposals.” EPR deputy Jean-René Cazeneuve, who proposed a similar amendment that was eventually withdrawn in favor of Amiel’s, admitted he is “unable to pinpoint” the specific inheritance tax increase necessary to fund the tax reductions on certain donations.
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“In reality, we have no clear idea of the financial impact of this measure if implemented as proposed. It could either burden the state’s finances, result in no cost, or even generate revenue! In that case, it would certainly be more challenging for the government to dismiss it.” suggests a parliamentary insider.