Prime Minister François Bayrou has proposed significant budget measures for 2025, utilizing Article 49.3 to advance the plan amid political challenges. Key elements include a 1.8% adjustment to the income tax scale, retention of a temporary high-income tax, increased transfer duties for property purchases with exemptions for first-time buyers, and tax changes impacting rental properties. Additionally, the zero-interest loan program will be expanded, cash gifts for home purchases will be tax-exempt, and alterations to the energy voucher system are anticipated.
François Bayrou’s Government Budget: Key Measures for 2025
After Michel Barnier, it’s now Prime Minister François Bayrou’s turn to secure the future of his administration with a significant budget proposal. Below, we outline the essential measures from the proposed 2025 budget that will take effect if the government remains intact.
As expected, Prime Minister François Bayrou has invoked Article 49.3 of the French Constitution to take responsibility for his government’s actions before the National Assembly, aiming to push through the tumultuous 2025 budget. This journey began in early October with Michel Barnier at the helm.
Will this lengthy and unprecedented process finally reach a conclusion? The answer will be revealed on Wednesday, depending on the outcome of the motion of censure. With the PS choosing not to challenge the Bayrou government at this juncture, the budget is likely to pass. In anticipation of this adoption, let’s explore the key measures included in this budget, crafted by the joint mixed commission (CMP) of deputies and senators that will directly impact your finances.
1 – Income Tax Scale: Less Generous Indexing Than Anticipated
Here’s a twist: the CMP’s text reveals that the progressive income tax scale is set to be indexed at 1.8%, rather than the initially expected 2%. While a 2% increase had been on the table since early October, Insee’s recent report indicated an annual inflation rate of 1.8% for 2024 (with a ‘classic’ inflation rate of 2%, the indicator excluding tobacco always being lower). Ultimately, the deputies and senators decided on a 1.8% adjustment. This indexing to inflation is a measure widely supported across the political spectrum, designed to stave off a widespread tax increase and prevent 619,000 currently non-taxable individuals from becoming taxable households.
2 – Differential Contribution on High Incomes: A Temporary Solution
“For the time being, we will retain the differential contribution on high incomes (CDHR), which imposes a minimum tax of 20% on the earnings of affluent households. However, we plan to replace it with an anti-optimization measure as soon as feasible, engaging in discussions with relevant stakeholders,” stated Minister for Public Accounts Amélie de Montchalin in mid-January, as reported by Le Figaro. “This new measure will ensure that the combined total of income tax, flat-rate withholding tax, and property wealth tax paid by the wealthiest individuals meets a minimum threshold, calculated based on wealth excluding the working tool.”
The CMP text still retains the differential contribution on high incomes (CDHR) in a temporary form.
3 – Real Estate Purchases: Increase in Transfer Duties, With Exceptions
Aligning with the Barnier government’s proposals, the CMP text allows local authorities to raise transfer duties on onerous transfers (DMTO) by 0.5 points, essentially increasing what are often referred to as “notary fees,” despite the misleading nature of that term since the notary primarily collects these fees on behalf of the State.
However, there’s good news for first-time home buyers: they are exempt from this increase.
4 – Rental Properties: Tax Advantages on Resale Coming to an End
As indicated in earlier versions of the 2025 budget, the latest CMP draft confirms the reintroduction of amortizations deducted for tax purposes into the calculation of capital gains when selling rental properties. Consequently, the tax burden on these properties will inevitably rise.
5 – Zero-Interest Loan: Extension Confirmed
Since its announcement by the Barnier government, the expansion of the zero-interest loan (PTZ) has garnered widespread agreement. To date, the PTZ is limited to tense areas for purchasing or constructing new homes in collective housing. The initial aim of the 2025 finance bill was to broaden the PTZ to include the acquisition and construction of new single-family homes or apartments across the entire country for first-time buyers. This proposal remains included in the CMP text.
6 – Donations: Tax Exemptions for Assisting Home Purchases
A new feature in the CMP text, which emerged during parliamentary discussions, proposes to exempt cash gifts intended for the purchase or construction of a primary residence, as well as for related energy renovation projects, from donation rights.
This initiative encourages parents and grandparents to financially assist their children or grandchildren in buying homes. “Cash gifts made outright to a child, grandchild, great-grandchild, or, if not available, a nephew or niece are exempt from transfer duties up to a maximum of 100,000 euros from the same donor to the same recipient and 300,000 euros per recipient,” as outlined in Article 19 ter of the bill. The donor is the one providing the gift, while the recipient is the one receiving it.
Currently, the transfer duty allowance allows gifts of up to 100,000 euros to children without incurring taxes, often supplemented by an additional exemption for family cash gifts amounting to 31,865 euros.
7 – Energy Voucher Reduction
The energy voucher is facing challenges… Assistance, ranging from 48 to 277 euros, has been significantly impacted this year due to the removal of the housing tax on primary residences, which was previously used to determine eligibility.
With the submission of the 2025 budget to the National Assembly via Article 49.3, a new change is on the horizon. Previously, the energy voucher could be used to cover energy bills (gas, fuel, electricity, or wood) or for energy renovation work through certified craftsmen. Now, the finance bill plans to eliminate this option.