‘Budget season is a good time to review tax planning in France’

Partner article: Rob Kay from Blevins Franks explains what recent changes in France could mean for your tax position

The French finance bill included a 5.4% increase in every income tax bracket to index them with inflation
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It is budget season across much of Europe and, unsurprisingly, a strong focus is on reducing the impact of inflation. France is no exception.

We have seen many different approaches. Here in France, Finance Minister Bruno Le Maire stated: “We do not want to increase taxes and we want to protect households [from inflation].”

In contrast, our southern neighbour Spain announced plans to introduce a new temporary wealth tax (it already imposes one wealth tax), the ‘solidarity tax on large fortunes’, while cutting income tax for lower earners. The aim is to redistribute wealth during the cost of living crisis.

The biggest budget story this autumn, though, has to be the UK’s, which started by unveiling the largest package of tax cuts in 50 years, followed by one U-turn, then another, then a major reversal, including a brand new chancellor and prime minister.

Projet de loi de finances pour 2023

While presenting the 2023 finance bill, Mr Le Maire was clear that France’s “most important and urgent challenge” was to bring down inflationary pressures.

The government has budgeted €45billion to help families and businesses with energy prices and had already announced it was capping gas and electricity price increases at 15% next year.

Read more: How your gas and electricity bills will change in France in 2023

No new spending will be approved unless it has been budgeted to the nearest euro, and only healthcare spending will continue to increase.

With regards to taxation, the only notable news from this budget was the 5.4% increase in every income tax bracket to index them with inflation.

Read more: France plans higher tax bracket thresholds to account for inflation

This results in reduced tax bills, although the tax rates themselves have not been cut.

France usually adjusts the income tax brackets for inflation, but the current levels of inflation make a more noticeable difference.

For example, a single person with no children (who in tax terms counts as one unit or one part) will start paying tax at 11% when their income exceeds €10,778, up from the current €10,226.

The income bracket for 30% tax is now applied to earnings above €27,479, as opposed to €26,071 as it was previously.

The aim here is to protect people from having inflation-related salary increases being wiped out by taxation.

Increasing the thresholds also means less tax is paid by those whose income has not increased.

The new income tax bands apply to 2022 income declared on your tax return in spring 2023.

Social charges and taxe d’habitation

Social charges remain the same as this year: 9.7% for employment income; 9.1% for pension income (unless on very low income or exempt because you hold Form S1); and 17.2% for investment income and gains.

The latter is reduced to 7.5% if you are covered by the health system of another EU/EEA country or have Form S1.

Away from income tax, 2023 is the year the taxe d’habitation is eliminated completely for main homes.

Read more: Taxe d’habitation deadline approaches in France: Who still pays this?

The gradual reform began in 2018 but 20% of households are still paying it. The budget also confirmed the removal of the TV licence (contribution à l’audiovisuel public).

One reform that has been shelved for now because of the current economic situation is succession tax.

During his presidential campaign, Emmanuel Macron pledged to increase the tax-free deduction for inheritances between parents and children and to lower taxes for other relatives, such as stepchildren. It is possible that some MPs might try to reinstate this during the approval process.

French budgets go through various parliamentary debate – or can be forced through using a mechanism known as article 49.3, as was the case with this budget in the lower house – and approval stages before being finalised.

Read more: Article 49.3: French government prepares to push budget through today

We must generally wait until the end of the year for confirmation of the final finance bill.

The UK mini-budget

On September 23, the then-UK chancellor Kwasi Kwarteng revealed his first budget, with the aim of bolstering growth by reducing inflation and taxation. To say it was not well received by the markets is an understatement.

The biggest surprise of his budget – that the additional income tax rate of 45% levied on earnings over £150,000 would be abolished – was withdrawn after 10 days.

But that was just the start, as Mr Kwarteng was fired as chancellor and within days his replacement, Jeremy Hunt, had reversed many of the other tax cuts.

Mr Hunt announced his Autumn Statement in November. You can read about some of the measures affecting Britons abroad here.

Budget season is a good prompt to review your tax planning each year. Consider whether any rules have changed since your last review, and check you are making the most of the available allowances and tax-efficient opportunities.

For the best results, and to make sure you have not missed anything, take personalised advice from a cross-border specialist with understanding of both tax regimes.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon Blevins Franks’ understanding of current taxation laws and practices, which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

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