5 Ways France’s 2025 Tax Law Will Disrupt the Real Estate Market

The French real estate market is about to undergo a major upheaval. With the draft finance law for 2025 currently under discussion, property owners find themselves at the center of crucial tax reforms that could reshape the way real estate is taxed. Traditional tax exemptions for capital gains, exemptions on primary residences, and other tax advantages that have favored investors over the past decades are under scrutiny. These changes, which occur in a tense economic context and a sluggish real estate market, raise the question: how will property owners adapt to these new measures?

Reforms of the Capital Gains Taxation on Real Estate

The first highlight of this draft law concerns the end of exemptions for the duration of ownership. Currently, property owners benefit from significant tax exemptions on capital gains made after 22 years of owning a property, with a total exemption from social contributions after 30 years.

However, according to the terms of the draft, this measure could be replaced by an indexation of the purchase price of the property based on inflation. Such a reform aims to “more accurately reflect economic reality” and prevent the creation of artificial capital gains due to inflation, according to the parliamentarians in charge of the issue.

Indeed, this modification could profoundly change the long-term investment strategy of property owners. By replacing the current exemptions with an indexation of the acquisition price, it could reduce the tax appeal associated with prolonged property holding. The draft also proposes applying a flat tax rate on capital gains, currently at 30%, which could rise to 33%. These modifications aim to “stimulate the market” and encourage property owners to put their properties back on the market more quickly, according to proponents of the reform.

Changes to the Exemption on Primary Residence

Another important aspect of the reform concerns the exemption from capital gains tax on the sale of a primary residence. Thus, an amendment now stipulates that this exemption will be conditional on a minimum period of five years of actual residence in the property. This change aims to limit tax abuse and encourage residential stability. However, exceptions are provided for specific cases such as job relocations, separations, or hospitalization, to avoid penalizing unforeseen situations.

This measure could have consequences on the residential mobility of households, particularly younger workers often forced to relocate for job reasons. Through the reduction of the flexibility of exemption on primary residence, specialists in the field fear a brake on the dynamics of the already affected real estate market due to rising interest rates.

While some believe that this reform will facilitate transactions and combat speculation, others fear a decrease in the attractiveness of real estate investments. In the long term, these new rules could also push some property owners to rethink their investment strategies, with effects that are still difficult to assess in the long run.

The proposed reforms under the draft finance law for 2025, particularly the abolition of exemptions for duration of ownership and the tightening of exemption conditions on primary residence, are clearly designed to simplify the tax system and revitalize a stagnant real estate market. However, these changes are likely to deeply alter the strategies of investors and property owners by reducing the tax advantages traditionally associated with long-term ownership. While some industry players view these measures as an opportunity to revive the real estate supply in full decline, others see them as a threat to residential mobility and the appeal of long-term investment. The debates around this draft are just beginning, and the consequences for the French real estate market will gradually unfold as these reforms come into effect.