The French Tax System can often appear to be a minefine of confusing, conflicting information. Patrice Perrin, (English speaking accountant) has kindly tried to explain the financial “ins and outs” of renting out both furnished and un-furnished property in France:
Unfurnished : “Revenus fonciers”
This applies to flats that have a minimum of furniture and that are rented to long term tenants (i.e. the tenant furnishes the flat). Miscellaneous expenses such as insurance, property tax (taxe foncière), real estate agency and accounting fees, maintenance works (plumbing, electricity…) and mortgage interest can be set against the gross rent in order to calculate the taxable income.
If there are any deficits (generally incurred by maintenance work and mortgage interest) they can:
1) Be set against other taxable income up to a maximum amount of 10 700 € (but not the part of it incurred by mortgage interest),
2) Be carried forward for ten years to be set against the same type of income (i.e. “revenus fonciers”).
An optional scheme of “micro-foncier” also exists which is applicable to rental income not exceeding 15 000 € per year. Within this scheme, a flat allowance of 30% is applied to the gross rental income in order to determine the taxable income.
In addition to income tax, income from French property is also subject to “prélèvements sociaux” (i.e. social contributions). Since 2012, this also applies to non-residents. For 2012 income, the rate of these contributions is 15.5 %.
Furnished : « Loueur en meublé non-professionnel » (LMNP)
This applies typically to seasonal or holiday accommodation that is fully furnished and that is rented to holiday makers or patrons taking the waters in spa resorts such as Amélie-les Bains.
Schemes similar to those for “revenus fonciers” exist :
Only the gross rental income has to be reported on the tax return. A fixed allowance of 50% of the rent is granted for expenses in order to determine the net taxable income. This scheme cannot therefore generate a deficit (cf the “micro-foncier” scheme described above).
Régime Réel :
This scheme requires the preparation of full commercial accounts and that the property be registered as “location en meublé non-professionnelle” at the tax office. This enables the tax payer to claim all expenses directly linked to the activity including building depreciation costs. This usually creates a deficit that can be set against the LMNP income in subsequent years.
This scheme can also be used by non-residents who own a house in France and let it out when they are not using it for their own holidays, providing that they discount a part of the expenses (including depreciation costs of the building) pertaining to their share of occupation of the property.
In addition to income tax, LMNP income is also subject to “prélèvements sociaux” (similar to “revenus fonciers”).
However, the law existing since 2012 concerning “prélèvements sociaux” in regards to “revenus fonciers” for non-residents is mute about the LMNP income of non-residents regarding these social contributions.
We may thus assume that such income is still out of the scope of the social contributions for non-residents, at least for the time being.
For further information or clarification (in English) on this subject or any other accounting, taxation or finacial issues you can contact Patrice Perrin on :
Tel. 04 68 66 06 06