Wealth Taxation: CPO Calls for Comprehensive Overhaul

A dense, efficient, yet unbalanced tax system

The report from the Council for Compulsory Levies (CPO) starts with a simple observation: wealth has surged. In 2021, the net wealth of households represented six times their disposable income, compared to 4.5 times in 2000. This development is largely due to the significant appreciation of real estate and financial assets over the past two decades, as well as demographic aging, which mechanically increases the share of wealth in household assets.

However, France remains less concentrated than other major economies. The wealthiest decile holds 60% of the national wealth, and the top 1% possesses 27%. In the United States, these figures reach 70% and 35%, respectively. The report highlights that while wealth inequality exists, its intensity remains moderate compared to international standards, which doesn't eliminate the need to consider better ways to tax wealth.

French wealth taxation is among the highest in the OECD. In 2024, it reached 113.2 billion euros, a steadily increasing amount over the past thirty years, slightly outpacing the growth of wealth itself. The CPO distinguishes two categories: 64.3 billion euros from holding and transferring wealth (which is 0.4% of total wealth), and 48.9 billion from income generated by wealth, equaling 11.6% of the related income. This quantitative assessment highlights a significant overall tax burden, but more importantly, a fragmented system with effects that vary greatly depending on asset composition.

This is one of the key points of the report: French wealth taxation is both heavy and inequitable. Lower-income households are often fully exempt, while wealthier households benefit from special arrangements—such as the Dutreil pact, family holdings, and specific deductions—that significantly reduce their actual tax liability. The CPO advocates for a more neutral approach: a broad base with few exemptions and lower rates, to limit tax optimization strategies and encourage more efficient capital allocation.

Inheritance, capital gains, life insurance: the dividing lines

On the topic of inheritance taxes, the report highlights a counterintuitive reality: more than 50% of inheritances are currently exempt. However, behind this apparent generosity lies a highly contrasting system. Lower-income households benefit from full exemptions, while wealthier households use highly specific schemes, particularly the Dutreil pact, which the Economic Policy Council (CPO) suggests limiting rather than completely overturning. It also recommends modernizing the scale of gift and inheritance taxes to account for new family structures, and considering a moderate reduction in rates, potentially much stronger to align France with international practices.

The report also dedicates a significant section to real estate capital gains. Currently, deductions based on holding periods lead to a full exemption after thirty years for secondary residences. This rule is considered incompatible with rational market management: it freezes supply, restricts properties that would otherwise circulate, and encourages some owners to improperly reclassify their property as a primary residence before sale. The CPO proposes abandoning these deductions but compensating with an inflation-linked indexation of the purchase price based on a construction-related index. This reform aims to find a balance: securing savers without maintaining distorting benefits.

The issue of primary residences is even more sensitive. The report does not make an explicit recommendation for taxation, but it reflects on economic neutrality. According to the authors, the complete absence of taxation represents a conceptual gap in a system seeking to balance the treatment of different forms of wealth.

Finally, life insurance is also under consideration. With 42% of households holding a contract, it forms the foundation of long-term savings in France. Its inheritance advantage—the ability to transfer assets outside the standard inheritance tax, reaching up to 60% in some cases—is highlighted as an exceptional regime, a remnant from a system where inheritance taxes are very high. The CPO does not recommend immediate changes, but emphasizes that any reform should be accompanied by a substantial reduction in inheritance taxes to avoid destabilizing long-term savings or penalizing existing wealth strategies.

The report, which covers all aspects of asset taxation—property tax, regulated savings, capital gains, business transfer, Dutreil pact, and life insurance—depicts a system that is complex, fragmented, and lacking clear economic coherence. It reminds that this taxation simultaneously finances the state, departments, and municipalities: an institutional architecture that partly explains the challenge of any reform.