The 2025 French budget is undergoing significant revisions following intense debates in the National Assembly. Changes include the reinforcement of the high-income surtax, restoration of the Sarkozy-style exit tax, and discussions around eliminating taxes on overtime. Additionally, an increase in tax exemptions for empty rentals and the introduction of a tax credit for dependency expenses in nursing homes have been proposed. Other measures include restoring tax benefits for widows and potential changes to life insurance rules.
The 2025 budget is taking shape following a week of discussions in the French National Assembly. As a result of the government’s weakened majority after this summer’s early parliamentary elections, opposition parties have gained more influence, leading to significant amendments in the Finance Bill (PLF). Key changes include a new surtax for high-income earners and tax exemptions for overtime work. Below, we highlight the most notable adjustments to the budget concerning taxation.
Continuation of the High-Income Surtax
One of the government’s major losses is the continuation of the high-income surtax. Originally proposed by the Barnier government to improve public finances, this additional tax applies to the wealthiest households. Specifically, individuals with a reference tax income (RFR) above €250,000 and couples over €500,000 will face this tax if their combined income tax and exceptional contribution on high incomes (CEHR) averages less than 20% of their RFR. Initially designed as a temporary measure for three years, it has now been solidified due to the support from the Nouveau Front populaire and center parties.
Reintroduction of the Exit Tax
Another significant change is the revival of the exit tax, reminiscent of policies from the Sarkozy administration. A coalition of left and right parties voted to restore the original exit tax framework, targeting unrealized capital gains of company directors who relocate their tax residence abroad. Previously, this tax was modified under Macron to allow only a two-year waiting period for those wishing to keep their shares post-departure, but the updated plan reinstates the 15-year requirement.
Complete Tax Exemption for Overtime on the Horizon?
Lawmakers from the Republican party have endorsed a proposal to fully exempt overtime pay from taxes, reversing the partial restoration seen in 2018. The explanation provided by Fabien Di Filippo, a LR MP, highlighted the need for reducing employer charges and eliminating the contributions for these hours to facilitate financial relief for workers.
Increased Flat-Rate Allowance for Empty Rentals
In a move benefiting landlords and renters alike, the National Assembly has opted to raise the flat-rate allowance for owners of empty rental properties from 30% to 50%. This change aims to promote long-term leasing and aligns the taxation of empty properties with that of furnished tourist rentals. MP Annaïg Le Meur emphasized the urgency of reinstating bare rentals, which offer longer lease agreements compared to furnished options.
Tax Credit for EHPAD Residents
Amid financial pressures, a new tax credit for expenses related to dependency and accommodation in Etablissement d’hébergement pour personnes âgées dépendantes (EHPAD) has been proposed. Supported by MPs across the political spectrum, this change could significantly impact state finances, with projections indicating an annual cost of €880 million, up from the current €272 million for the existing tax reduction.
Possible Tax-Free Alimony Payments
In another attempt to achieve tax fairness, discussions surrounding the treatment of alimony payments are underway. Currently taxable, these payments may soon become tax-free. Lawmakers plan to eliminate the deduction benefits for the non-custodial parent who pays alimony, addressing long-standing inequities.
Return of Half-Tax Share for Widows and Widowers with Children
Widowed parents may soon see the reinstatement of a tax benefit removed in 2014, known as the half-tax share. Daniel Grenon, a representative from Yonne, shared that the removal of this provision led to significant financial hardship for elderly citizens.
Revised Life Insurance Policies
Changes may also be coming for life insurance policyholders. While suggestions to align taxation with inheritance laws were rejected, new measures will allow clients under 70 to transfer their policies to beneficiaries, with a maximum limit of €152,500. Although the government opposed these changes, they received parliamentary approval, making their inclusion in the final budget uncertain.