Wealthy French make post-election contingency plans

France’s wealthy are making contingency plans for a far-right or leftwing government, unnerved by the prospect of tax hikes and the potential reinstatement of a divisive wealth tax. 

Several lawyers, tax advisers and wealth managers said that they had been flooded with queries — including tentative relocation inquiries to Italy, Switzerland and Spain — ahead of a two-round snap election called by President Emmanuel Macron.

Polls showed that Marine Le Pen’s far-right Rassemblement National and a new leftwing alliance called the Nouveau Front Populaire (NFP) were running first and second in the polls, both promising breaks with Macron’s business-friendly tenets and tax cuts. 

“I’m not sure I’ve had this many calls since the start of my career,” said Grégory Soudjoukdjian, co-founder of Rhétorès Finance, a wealth advisory company in Paris. “Our high-end clientele are asking themselves a lot of questions . . . What is difficult is to answer them in detail.”

“The question we get asked most frequently is if money is safe in France,” he added. 

Soudjoukdjian and other advisers said individuals were examining whether to hold on to life insurance contracts in the event of severe market ructions if the election delivers a hung parliament. France’s most popular savings product, life insurance, offers tax advantages after eight years, but money can be removed earlier or upon a death. 

Some holders of such investments are concerned that laws in France could potentially allow the state to freeze withdrawals in a crisis, advisers said.

If the far right or the leftwing Nouveau Front Populaire (NFP) bloc were to win the July 7 run-off, they could form a government and share power with Macron as president. Both have made generous spending promises, and the left would also raise taxes significantly. 

Le Pen’s RN has sought to reassure business, including by saying it would still bear fiscal discipline and European deficit rules in mind, although its economic programme remains scant on details.

But it is the prospect of the NFP, with a radical tax and spend agenda heavily inspired by the far-left La France Insoumise (also known as France Unbowed or LFI), that is the main concern for France’s wealthy. 

“From an economic and tax standpoint, people are most worried about the leftwing alliance because their tax programme is very aggressive,” said Vincent Lazimi, a partner at law firm Jeantet in Paris. “People are worried about a wealth tax, the end of the flat tax and potential higher taxation on salaries, as well as an overall atmosphere that is not pro-business.” 

One of Macron’s first reforms was to overhaul a wealth tax so that it covered only property assets and excluded investments — a move the RN has suggested it wants to reverse to tax “financial fortunes” for people with over €1.3mn in assets.

The president also set a flat tax rate of 30 per cent on capital gains, dividends and interests — a long-standing demand from investors and entrepreneurs. 

Lazimi said that clients have been inquiring whether they ought to distribute dividends now to avoid a potential increase to the flat tax. New tax rules could be imposed retrospectively, however, which would invalidate any such preparation, he added.

France was already the most taxed out of 38 OECD countries in 2022, with a tax to GDP ratio of 46.1 per cent, compared with the OECD average of 34 per cent. 

To pay for tens of billions of euros of extra public spending, the NFP would seek to increase the wealth tax and inheritance tax. It would also broaden the scope of exit taxes on wealthy people who move their tax residence or businesses out of France, and raise the top marginal income tax rate to 90 per cent. Some tax breaks and credits for companies would be scrapped if the NFP comes to power.

“The main concern is the wealth tax,” said one Paris-based lawyer who works with some of France’s richest families. 

Since it was first created in 1982 under socialist president François Mitterrand, the levy — known as the impôt de solidarité sur la fortune — has been abolished, reinstated and reformed by successive governments.

“Clients are very afraid that a leftwing alliance would impose a one-off wealth tax,” the lawyer added, a politically eye-catching gesture that could be implemented swiftly. 

Socialist François Hollande began his presidency in 2012 by imposing an incoming 75 per cent marginal tax rate on incomes over €1mn as part of a campaign against “faceless finance”. He later had to tone it down after it was knocked back by France’s constitutional court — a precedent which some advisers said offered safeguards now too. 

Hollande’s move still prompted a capital flight, however, and a mini exodus of bankers to London. 

“None of this is going to incite people to reconsider France as a welcoming land for business,” Xenia Legendre, a tax partner at Hogan Lovells in Paris, said of the campaign proposals from the left and far right.

Some wealthy individuals are now also starting to explore relocating from France to more fiscally favourable jurisdictions, including Italy, the historic tax haven of Switzerland, and Spain, advisers said.

“After the snap election was announced, we’ve had some French clients enquiring about the Italian tax regime,” said Claudio Gristanti, head of tax for Italy at law firm Osborne Clarke. 

Wealthy foreigners in Italy can pay a flat fee of €100,000 a year to exempt foreign income from Italian tax. It is a popular choice among those who are leaving the UK in response to the looming abolition of the “non-dom” regime. 

But to qualify as an Italian tax resident for 2024, an individual needs to be physically present on Italian territory for the greater part of the fiscal year — more than 183 days. So an individual waiting until after the French election result to start moving to Italy, would have to wait until 2025 to become an Italian tax resident. 

The Paris-based lawyer said that several of his clients are hedging their bets by laying the groundwork to become an Italian tax resident this year. “I have a few clients who have booked hotel rooms in Italy and plan to stay there until the end of July and then they can decide what to do,” he said. 

Others advised waiting, suggesting that it was unlikely that the leftwing alliance could gain enough sway in parliament to push its tax hikes through and was less likely to end up in power than the RN.

Some cautioned any new government might also be extra vigilant on fiscal crackdowns in a climate of strained public finances, and that people could get caught out.

“Relocating is a complex topic,” said Sandrine Genet, co-founder and head of wealth adviser Carat Capital in Paris. While Italy had indeed become a “new form of El Dorado”, leaving in haste could be problematic, she added. “It’s not just about where you go, but when you go, you really have to go — you take your children, you have to sell property.”