Taxation of furnished lettings

The Taxation of Furnished Lettings in France

The taxation of furnished lettings in France is a complex area with several tax regimes and many specific features. Furnished lettings are subject to different rules from unfurnished lettings, mainly because they are treated as a commercial activity. Here is an overview of the main tax points that owners of furnished properties need to know.

1. Definition of a Furnished Letting

A furnished letting is a home offered for rent with all the furniture needed for the tenant to live there immediately and comfortably. Basic equipment includes, among other things, beds, a table, chairs, storage and kitchen equipment.

2. The Tax Regimes

There are two main regimes for furnished lettings: the micro-BIC regime and the real regime.

Micro-BIC Regime

Eligibility: This regime applies if annual receipts from furnished lettings do not exceed €77,700.
Advantages: A flat-rate allowance of 50% is applied to rental receipts, which reduces the taxable base. This allowance covers the expenses borne by the owner (maintenance, repairs, etc.).
Simplicity: This regime is simple and does not require complex accounting.

Real Regime

Eligibility: Mandatory if receipts exceed €77,700; it can also be chosen voluntarily if receipts are lower.
Advantages: Allows all the actual expenses borne by the owner to be deducted (loan interest, works, depreciation, management fees, etc.). This can be more advantageous if expenses are high.
Complexity: Requires detailed accounts to be kept and often the involvement of a chartered accountant.

3. Non-Professional (LMNP) and Professional (LMP) Furnished Landlord Status

Whether you are a non-professional furnished landlord (LMNP) or a professional furnished landlord (LMP) depends on several criteria:

Non-Professional Furnished Landlord (LMNP)

Conditions: Rental receipts must be below €23,000 a year or represent less than 50% of the tax household's total income.
Taxation: Income is declared under industrial and commercial profits (BIC) and can benefit from the micro-BIC or real regime.

Professional Furnished Landlord (LMP)

Conditions: Rental receipts must exceed €23,000 a year and represent more than 50% of the tax household's total income. Registration with the Trade and Companies Register (RCS) is also required.
Taxation: Income is also declared under BIC, but with different tax implications, particularly for social security contributions and capital gains.

4. Tax Advantages and Depreciation

Furnished lettings offer several tax advantages:

Depreciation of assets: The furniture, as well as the property itself, can be depreciated, reducing the taxable base over several years.
Deductible expenses: Actual expenses relating to the letting activity are deductible from rental income.

5. VAT and Furnished Lettings

Furnished lettings are in principle exempt from VAT. However, certain hotel-type services (reception, breakfast, regular cleaning, provision of linen) can make the letting liable for VAT if they are offered in addition to the rental.

6. Taxation of Capital Gains

Capital gains made on the sale of a furnished rental property are subject to specific rules:

LMNP: Capital gains are taxed under the regime for private individuals, with an allowance based on how long the property has been held.
LMP: Capital gains are taxed under the regime for professionals, which can be more advantageous if the activity has been carried on for more than five years.

The taxation of furnished lettings is advantageous but complex, with choices to be made between different tax regimes and statuses. Sound accounting and tax management is essential to optimise income and meet legal obligations. Calling on a chartered accountant who specialises in furnished lettings can be a wise move to navigate these complexities and get the most out of your property investment.