French PM confirms ‘minimum tax’ will apply for high earners: who is impacted?

High-income earners in France are set to face a tax surcharge in the upcoming budget, as some plans of former prime minister Michel Barnier are to be kept by the current government.

Current prime minister François Bayrou confirmed a tax on high-income earners would be included as part of his planned 2025 budget yesterday (January 17).

Mr Bayrou originally said in his key policy address given earlier this week that such a tax would not be included in his budget, as it could not be applied ‘retroactively’.

He instead planned for an ‘anti-optimisation tax’ – preventing wealthy households from using tax loopholes – to be included, either in his version of the 2025 budget or ‘by latest’ in the 2026 version (set to be debated this year).

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However, Mr Bayrou promised to keep the tax hike on wealthy households in his 2025 budget to garner the support of the Socialist Party and prevent them voting against his government in a vote of no confidence yesterday (January 17).

The motion, brought forward by other parties on the left, was roundly rejected in the Assemblée nationale. 

The measure is in fact legal and possible to retain in the budget despite previous comments to the contrary, the government said (quoted in French media Les Echos).

As a reminder, a budget is usually passed on or before December 31 of the year before, affecting finances for the upcoming calendar year and tax payments on income earned during the last 12 months.

Who will be affected and how much will they pay?

This tax on high-earners, known as the contribution différentielle sur les hauts revenus (CDHR) would see the minimum tax rate of the impôt sur le revenu (income tax) of the high-earning households increase to 20%. 

This would help authorities ensure the wealthiest households pay a minimum tax rate of at least 37.2% when the social security contributions and impôt sur le revenu are both taken into account, regardless of any tax mechanisms used to minimise the amount they pay.

The current rate of minimum tax that high-earners pay (30%, split between social security contributions of 17.2% and impôt sur le revenu of 12.8%) would be raised to 37.2% as the impôt sur le revenu would rise to 20%.

If the measures included in Michel Barnier’s original budget are kept – as is likely the case – this will impact households with a revenu fiscal de référence (RFR, or net taxable income) of €250,000 for an individual, or €500,000 for a couple. 

In real terms, this is around 20,000 - 25,000 French households. Mr Barnier’s government initially estimated that around 60,000 households would be subject to the tax, but this number was later recalculated.

This surtax is expected to raise around €2 billion in the 2025 budget. 

Mr Barnier’s original plans saw the tax implemented for three years, with later amendments from the left attempting to make it permanent. 

However, so far it seems the government of Mr Bayrou will only levy the exceptional tax for one year.

It is important to note that the tax increase will only apply to income earned in 2025 (declared in spring 2026) and not in 2024, as it would have under the original budget of Mr Barnier. 

This is because the taxes cannot be applied ‘retroactively’ and as stated, 2025’s budget will be exceptional in not having been passed before December 31, 2024. 

More taxes on the wealthy to come? 

Another tax being considered by Mr Bayrou, called ‘anti-optimisation’ tax, would be based on the value of an individual’s assets as opposed to income.

It would bring in the same amount of income as the high-income earner tax (i.e. around €2 billion). 

However, it is expected it would only be levied on those with wealth (including all assets) of €1 billion or more. It is estimated there are just under 150 French billionaires. 

It is possible that both taxes would be included concurrently, however this is not guaranteed to be the case. 

A hike on taxes paid by France’s largest business does not seem to be making a return in Mr Bayrou’s budget, however.

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