A Changing Fiscal Framework: Opportunities for Life Insurance
The 2025 Budget Act introduces several fiscal adjustments that could reshape wealth management strategies. While life insurance maintains its favourable tax treatment, new fiscal constraints on high incomes and real estate investments may shift asset allocation.
Higher Taxation on High Incomes and Real Estate
CDHR: Minimum Taxation for High Incomes
The new Differential Contribution on High Incomes (CDHR) imposes a minimum tax rate of 20% on individuals earning over €250,000 and couples over €500,000. This is in addition to standard income tax and the Exceptional Contribution on High Incomes (CEHR). A 95% advance payment is required in December 2025, with final adjustments in 2026.
Increased Taxation on LMNP Real Estate
Capital gains taxation for non-professional furnished rentals (LMNP) is tightening. Effective February 15, 2025, previously deducted depreciation must now be reintegrated into the taxable base upon sale, significantly increasing tax liabilities.
Other Fiscal Adjustments
Temporary Tax-Exempt Donations for New Home Purchases
Until 31 December 2026, family donations of up to €100,000 per donor (max €300,000 per beneficiary) for purchasing or constructing a primary residence will be exempt from transfer duties. The property must be held for at least five years. However, this measure lacks the long-term flexibility of life insurance, which allows structured wealth transfer with optimised taxation and liquidity.
Higher Transfer Taxes
French departments may raise real estate transfer duties by 0.5 percentage points from 1 March 2025 to 29 February 2028. This further diminishes the tax appeal of property investments compared to financial instruments like life insurance.
Stricter Taxation of Management Packages
Gains from management packages will now be taxed as capital gains up to three times the company’s financial performance. Any excess will be reclassified as salary income and taxed up to 45%. While gains taxed as capital gains are exempt from social security contributions, those classified as salary income will incur a 10% sui generis contribution.
Clarified Tax Residence Rules for Non-Residents
A taxpayer classified as non-resident under an international tax treaty cannot be considered a French tax resident under domestic law. Additionally, non-residents can now reclaim excess withholding tax on securities capital gains, aligning with EU law.
Adjusted Income Tax Scale
The progressive income tax scale is indexed by 1.8%, ensuring that inflation does not lead to automatic tax increases. While this measure does not directly impact life insurance, it helps limit the mechanical rise in taxation for some taxpayers.
Life Insurance: A Strategic Tool in a Changing Fiscal Landscape
The 2025 French Budget Act brings significant changes to wealth management, with higher taxes on high incomes, real estate and management packages. These new measures make life insurance an increasingly attractive tool for tax efficiency, asset diversification and wealth transfer strategies.