If you’ve just arrived here - hi, welcome! Before you get stuck in, we recommend taking a few minutes to read our most recently posted blog all about ‘obligations for holiday lets and property rentals’. This may answer some of the more generic questions you may have related to property rentals and will give you a good insight into the topic before we get going with the nitty gritty that is fiscal tax.
In this resource blog we’ll be discussing fiscal options for property rentals. Now as we all know, taxes are not always the most simple task in French administration. Particularly in the case of property rentals, there are many different variable factors that will affect the fiscal status you’ll choose to rent under. Your profile as an individual will affect your eligibility, whether your property is furnished or not, whether you have multi-ownership etc… the list goes on. We’re aiming to shed some light on this complicated topic now.
Let’s start with furnished or unfurnished rentals…
We recommend that your first step should be to determine whether you are renting a furnished or unfurnished property. If you’re not sure what this means (or if you have a couple of pieces of furniture but no beds, or only beds but no fridge or dishwasher) or you’re just generally confused about your status, the official government site here will help you determine your furnished or unfurnished status.
Once you’ve figured out this initial step, next you have to delve further and make the decision as to which fiscal status you want to rent under, and which is right for you. To help you choose, we’ve identified some common profiles that our clients fit under in the hopes of helping you too.
1. 2. You’re an individual with an unfurnished apartment
This regime is called the ‘micro scheme’, known as "micro foncier" which applies to you as an individual with an unfurnished property, if the gross rental amount is less than 15 000€ per year. If you fit the criteria you can choose this regime. In our opinion, it’s the most simple to choose if you don’t have a huge amount of property charges to consider. Under this regime, you’re entitled to a reduction in your obligations of declaring. A flat-rate deduction of 30% of income is applied to cover all property expenses such as repairs or improvements to the property, certain co-ownership expenses, insurance premiums and certain taxes. Winner!
2. You’re an individual with a furnished apartment
This choice is also simple to choose, if you don’t have many outgoing charges for the property. However it’s probably not the most applicable if you have lots of charges that you could write off (loan or agency fees for example) on the Reel regime. To fit the criteria, you’ have to have a furnished apartment as an individual, the scheme can be applied when the amount of your revenue for the previous year or the year before last does not exceed:
72 600€ for the rental of furnished residential premises;
176,200€ for the rental of classified bed and breakfast and furnished tourist accommodation.
When declaring your income on the annual tax return, if you rent as a non professional, you’ll be entitled to:
A flat-rate deduction of 50% (with a minimum of €305), representing charges, will automatically be applied fur furnished rentals;
A flat rate deduction of 71% (with a minimum of €305) will be applied for bed and breakfast or furnished tourist accommodation.
3. You’re a professional or unprofessional with a furnished rental
If you’re not sure what being classed as a ‘professional’ means - you become a professional if you earn 23k and over OR if your rental income is higher than the rest of the household income. The activity of a furnished landlord is carried out on a professional basis when the following two conditions are met:
The annual income from this activity for all members of the tax household exceeds 23,000€;
The revenue exceeds the other taxable income of the household.
The professional or non-professional nature of the furnished rental is assessed at the level of the tax household and applies to all the furnished rentals of the tax household.
When the activity generates more than 70,000€ of turnover, the professional furnished renter (LMP) is obliged to follow the réel regime. On the other hand, if the turnover is less than 70,000€, the default tax regime becomes that of the micro BIC. However, the LMP can opt for the Réel regime by sending a letter of option to the tax authorities.
4. You have multiple ownership over your property - Indivision
An indivision (multiple-ownership) cannot be subject to the micro tax regime as simply, there’s more than one owner. Instead, the simplified Réel tax regime applies here. The joint owners share the expenses and income according to their percentage of ownership of the property. The tax result of the indivision is taxed in the hands of the partners in proportion to their share in the joint ownership. As the tax system for joint ownership is a partnership system, the members of an indivision cannot benefit from the tax reduction for accounting expenses for their share of the income of the joint ownership.
5. You can opt into the Réel regime if you have multiple ownership - and your property is unfurnished
This system applies to you automatically if your property income exceeds 15,000€ per year, or by option if your expenses are greater than the sum representing the 30% allowance under the micro property system.
6. You can opt in for the Réel regime if you have multiple ownership - and your property is furnished
This system may be of interest if your costs exceed 50% of your income. Here are some of the costs that can be deducted if you declare on the Réel system;
loan interest and loan insurance.
agency fees for the purchase and notary fees if you decide not to write them off.
agency fees for renting out the property or fees for drafting the lease.
insurance premiums (homeowner's insurance or unpaid rent insurance).
replacement of small household appliances.
property tax and CFE.
current co-ownership charges excluding works.
7. Please note that it is not compulsory to use an accountant for a non professional furnished rental (LMNP).
You own your property under your company
The Société Civile Immobilière (SCI) is the most common structure when several people decide to invest in property and therefore rent an unfurnished flat or house. The question is more tenuous when it comes to furnished rentals and some people will want to substitute a limited liability company (SARL) or a simplified joint stock company (SAS).
The analysis is legal and fiscal and each case requires a thorough study by an expert. Be sure to contact a French chartered accountant.
Over and Out
If your situation is different to those we’ve highlighted, or if you’re still just utterly confused about your fiscal property options please send us a message today. As always - we’re happy to help.
See you next week!