If you intend to rent your French property out, it is important to be aware of the tax implications.
First of all please note that whether you are resident in France or not, you are liable to French income tax on French rental earnings. As such, you will need to submit a tax return to the French authorities of your rental income in France (together with any other French sourced income), even though you are not a French resident.
In addition, you will need to declare the income to the tax authority in your own home country but if France has signed a double taxation treaty with such country (as is the case in England) you will not be taxed twice on this income.
With regard to the tax rate:
- For a non-resident, the tax rate is 20% on the net rental (and other) income. Please note however that the social charges (payable by French resident on their rental income from France) do not apply to non-residents;
- If you are a French resident the rate of taxation is calculated on a progressive basis as if you were earning a salary.
With regard to the taxable rental income, it is calculated under two main regimes in France:
- Revenus Fonciers, applicable to income from land and unfurnished lettings;
- And BIC (Benefices Industriels et Commerciaux) to income from furnished lettings;
- There are also other regimes depending on your activity and the premises you are rented out.
1.If you are renting your property unfurnished
As mentioned above, rental income from unfurnished property is taxed under the regime of revenus fonciers. In this system, a distinction is based on the turnover as smaller landlords are given some choice as to the basis on which they can be taxed. As such, the two regimes available in this system are “régime micro-foncier” and “régime foncier”.
If your total rental income from unfurnished property does not exceed 15,000* € a year, you have the option to be taxed under the system of micro-foncier.
Under this system the tax authority applies an automatic allowance of 30% against your gross rental income. This means that you do not need to calculate and deduct actual costs against gross income to arrive at a figure for taxable profits, as the automatic allowance will be used. You will then be taxed on 70% of your gross rental income.
It is worth opting to this regime, if your actual eligible costs are less than 30% of gross income. However, if your costs are higher than 30% then you would be better off electing to be taxed under the régime réel, where you are taxed on the basis of actual net income.
So, if you undertake major works to a property to get it ready for letting, then you would be better off opting for the régime réel.
As mentioned before, if your eligible costs are greater than 30% of your gross rental income, then you would be better off choosing to be taxed under the régime réel (if your rental income is less than 15,000* €).
However, please note that if you elect to be taxed in this way then it is irrevocable for a period of three years. At the end of this period, it is renewable on an annual basis. On this basis you need to carefully consider your likely costs over three years, not merely the first year, before you choose this option.
Please note that if your rental income is in excess of 15,000* € per year, you are then obliged to use the régime réel.
Under such regime, your tax liability is determined after deducting your eligible costs (such as general management costs, insurance, costs associated with the repair or improvement of the property, costs of mortgage, etc) against your gross rental income. In the event that you incur a loss in the year (due, for instance, to major renovation works) then you are entitled, under some conditions, to carry forward losses.
If you elect for the régime réel (or you obliged to use it), it would be advisable to seek assistance of a good accountant or a tax lawyer to assist with the tax declaration.
2. If you are renting your property furnished
As mentioned above, rental income from furnished property is taxed under a system of bénéfices industriels et commerciaux (BIC).
As in the other category, depending on the turnover, you have the choice between three income tax regimes: micro-BIC, Régime réel simplifié and régime réel normal.
In this regime, the threshold is 32,100* € and the tax-deductible element of the gross income is 50%. However, for income derived from gîtes, chambres d’hôtes and meublé de tourisme, the threshold is 80,300 €, and the tax-deductible element of the gross income is 71% (This means you are taxed on 50% or 29% of gross rental income, depending on the type of accommodation you let).
Under the Micro-BIC regime, you do not need to show expenses or prepare accounts although you do have to adhere to specific record-keeping formats.
Please note that if the property is a leaseback property or is held in a French property holding company (SCI), the Micro-BIC regime cannot apply.
Régime réel simplifié (RRS)
Under the RRS, the majority of the letting expenses are deductible and it is possible to record a loss. The range of deductibles includes all maintenance, repairs, restoration, running expenses and interest on loans used for the acquisition, construction, restoration or improvement of the property. Accounts to French accountancy standards and additional tax forms have to be prepared under the RRS, so administration is more expensive than the Micro-BIC regime.
Régime réel normal
The usually applies to businesses whose annual turnover is more than 763,000 Euros, although it can apply by option to income under this threshold. A full set of accounts, and all supporting documentation, must be submitted to the French tax authorities annually. There are also specific record-keeping requirements under this regime, and all documentation should be kept for a period of 10 years.
3. Other forms of letting
Loueur en meublé professionnel (LMP)
If you want to let furnished properties on a professional level, you can register as a loueur en meublé professionnel (LMP), ie : professional furnished landlord. There are many tax benefits to this status, including exemption from wealth tax in relation to the properties. However, please note that such registration usually automatically registers you with social security as a self-employed person and so is not ideal for non-residents.
To benefit from this status:
- your total turnover from furnished rental activities must exceed 23,000* €
- this income must exceeds 50% of the household’s net earned income excluding investment income or capital gains
- at least, one member of the household must be registered with the Registre de Commerce et des Sociétés.
You have to register the business prior to starting to professionally let out properties; this regime cannot be retrospectively applied.
Letting a room in your main home
If you live in a French property as your main home and let rooms, the rental income is tax free if:
- the room is the tenant’s principal residence;
- The annual rental must not exceed a maximum rate, which is revised each year by the Tax authorities.
If you live in a French property as your main home and let rooms to visitors from time to time, you will be taxed under the Micro-BIC regime as for furnished lettings. However, you may be exempted from paying tax if the annual income from rent is below 760* €.
Furthermore, certain conditions have to be met in order to qualify as a chambres d’hôtes.