No matter where you live, any income from letting out your French property is liable for tax across the Channel, as money expert Bill Blevins explains
Whether you are considering buying a French property to rent it out, for long or short-term lets, or you already have done, it’s important establish what your tax liabilities are. All rental income from French property is subject to tax in France, no matter in which country the payment is received, or where you are resident.
If you remain a UK resident the income is liable to both UK and French tax, but any French tax (including contribution au remboursement de la dette sociale (CRDS) and contribution sociale g�n�ralis�e (CSG) social charges) is deductible against UK tax on the same income. If the UK tax is more than the French tax, the difference is paid in the UK. If the UK tax liability is less than the tax liability in France, you do not pay any tax in the UK. The income still needs to be reported in both countries though.
French residents pay tax on rental income at the scale rates of up to a top rate of 41% (this may increase in 2013) plus social charges at 15.5%. Non-residents pay a flat tax rate of 20% on all income in France, which includes rental income. Non-residents were previously exempt from social charges on rental income but this changed in the summer and they now do have to pay this tax, backdated to the beginning of 2012.
To reduce the French tax liability, non-residents can apply the French income scale rates to their worldwide income in order to establish the effective tax rate on the income (taux effectif). The tax liability is calculated on your worldwide income as if you were French tax resident, but then the proportion of the tax liability related to the income that is not subject to French taxation is discounted.
Tax on rental income from furnished accommodation can be calculated under the Micro-BIC (b�n�fices industriels et commerciaux) regime for privately owned properties. For 2012 the threshold is €32,600 and the tax-deductible element of the gross income is 50%. However, for income derived from g�tes, chambres d’h�tes and meubl�s de tourisme, the threshold is €81,500 and the tax-deductible element of the gross income is 71%.
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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. The main drawback of this regime is that it always shows a fixed taxable profit (ie it can never show a lower net profit or a loss).
If the property is a leaseback property or is held in a French property holding company (SCI), the Micro-BIC regime cannot apply.
An alternative is the r�gime r�el simplifi� (RRS), which is available for rental income up to €777,000. This option is irrevocable for a period of two years. You need to officially opt into this regime if you wish to use it, and then officially opt out if you change your mind, but there are time limits.
Under the RRS, the majority of the actual expenses of the letting are deductible, so it is possible to record a loss. The range of deductible expenses 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, and so administration is more expensive than the Micro-BIC regime.
Professional furnished landlord
If you want to let furnished properties on a professional level you can register as a professional furnished landlord (PFL) or loueur en meubl� professionnel (LMP). This usually automatically registers you with social security as a self-employed person so is not ideal for non-residents. The Micro-BIC regime can still apply. Benefits include exemption from wealth tax in relation to the properties personally owned.
To benefit from this PFL status, your total turnover from furnished rental activities must exceed €23,000 and represent at least 50% of the household’s net earned income excluding investment income or capital gains. You, or a member of your household, must be registered with the Registre de Commerce et des Soci�t�s prior to professionally letting out properties; this regime cannot be retrospectively applied.
If you live in a French property as your main home and let rooms to visitors you will be taxed under the Micro-BIC regime as for furnished lettings, unless the rental income is below €760 per year, in which case it is exempt.
Certain conditions have to be met in order to qualify as a chambres d’h�tes. The income is tax free if you let a room on a permanent basis, so that it is in effect the tenant’s home, providing the rent is up to €118 per square metre.
Rental income from unfurnished lettings can be taxed under the Micro-Foncier regime. It is similar to the Micro-BIC regime; ie you don’t need to provide documented expenses or prepare accounts, although the thresholds and percentages are different.
If the total gross income from unfurnished lettings is below €15,000 per year, you can deduct a flat 30% as expenses, and so only 70% of the gross rental income from the unfurnished lettings will be taxable in France.
Do not forget that you also need to consider the capital gains tax implications of buying a French property, or, if you never sell it, how French succession tax and UK inheritance tax could be applied when you leave it to your heirs.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.