4. Taxation of Property Rental Income in France

1. 4.1. Non-Residents
   4.2. Summary of Tax Regimes
   4.3. Furnished Lettings
   4.4. Unfurnished Lettings
   4.5. Lodgings

4.4. Taxation of Rental Income From Unfurnished Lettings in France

While rental income from furnished property is taxed under the tax regime of Bénéfices Industriels Commerciaux (BIC) outlined in section 4.3. rental income from unfurnished property is taxed under a system of revenus fonciers (property income).

This tax regime applies to both residential and certain non-residential property, but the following guidance notes are restricted to residential property.

Two income tax regimes apply for revenus fonciers - micro-foncier and regime réel. In addition, all landlords are liable for the social welfare levy.

4.4.1. Micro-Foncier

Where your total rental income from unfurnished property does not exceed €15,000 a year then you are entitled (but not obliged) to be taxed under the system of micro-foncier.

This figure is doubled if a couple run the business.

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 be taxed on 70% of your gross rental income.

Accordingly, if your actual eligible costs are less than 30% of gross income then you would benefit from being taxed under this system.

If your costs are higher than 30% then you would be better off electing to be taxed under the regime réel, where you are taxed on the basis of actual net income.

You cannot carry forward losses incurred in the year under the regime of micro-foncier in the same way as is possible with the regime réel.

So, if you undertake major works to a property to get it ready for letting, then you are likely to be better off electing for the regime réel.

The rate of taxation under micro-foncier will depend on your family circumstances. A flat rate level of taxation will not apply as occurs with company tax – you will be taxed on a progressive basis as if you were earning a salary.

If you let a unfurnished property using one of the special tax regimes outlined below in 4.4.3. then you cannot benefit from use of the system of micro-foncier. There is similar exclusion for listed buildings (monuments historiques), properties located in conservation areas (Malraux) and urban revitalisation areas (Zone Franche Urbaine).

If the property is held through a French property company (Société Civile Immobilière (SCI) it is still possible to use this tax regime, provided the SCI is not taxed on the basis of company taxation. Those in such a 'fiscally transparent' company will be liable for tax on an individual basis in proportion to their own share of the income of the property, and to the extent to which they are otherwise liable to French income tax.

4.4.2. Regime Réel

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 regime réel.

Similarly, you are obliged to use the regime réel if your rental income is in excess of €15,000 per year.

These costs include general management costs, the costs of property insurance, local property taxes, the costs of a managing agent, guardian, caretaker, or gardener and the costs of insurance taken out against the risk of non-payment of rent by the tenant.

Also deductible are the interest costs associated with the repair or improvement of a rented property, as well as the interest costs on a mortgage for a property purchased with a view to it being let. It is irrelevant whether these interest costs arise from a secured or unsecured loan.

You can also deduct the fees associated with taking out a loan, as well as life insurance premiums payable to guarantee the loan.

The costs of improvement, repair and maintenance of the property are fully deductible but, as with furnished lettings, works to increase the size of an existing letting, or add additional letting units, are not ordinarily deductible. This is often a difficult area and a discussion with your local tax office is advisable before you start any new construction works. Similarly, works such as a new swimming pool would not be deductible.

However, local offices are often reluctant to accept invoices for materials only, so make sure the invoice has on it the address of the property, and not that of your principal home. You may also want to take before and after photos as proof, or discuss the project with the local office before you start.

In the event that you incur a loss in the year (due, for instance, to major renovation works) then you are entitled to carry forward losses.

If you let out a number of property losses on one property must be offset against the rental profits on another rented property to arrive at a total net profit or loss for the year.

Provided you continue to let property for at least three years, losses up to €10,700 a year can be carried forward on your global earnings for up to six years, but any losses in excess of this amount can only be charged your revenus fonciers for a period not exceeding ten years.

In the calculation of the deficit, the treatment of interest costs is a little peculiar. If the interest costs are lower than the gross rental income, then they can all be charged in the year to global earnings up to the maximum of €10,700. However, where they exceed gross rental income, the deficit arising from the interest cost can only be charged to your rental income over the next ten years.

Table: Calculation of Deficit

Item	Amount
Gross Rental Income	€10,000
General Expenses	- €5,600
Interest Costs	- €13,400
Deficit	- €9,000

Thus, in the above example the income is initially charged against interest costs, giving an deficit against interest costs of €3400, with other costs at €5600. Only the latter figure can be charged to global revenues in the year, with the €3400 chargeable against rental income the following year. Had the interest costs been less than the gross rental of €10,000 they could be charged to total earnings up to €10,700 each year.

If you elect for the regime réel (or you obliged to use it), it would be prudent to engage a good accountant to assist with the bookeeping and tax declaration, at least in the first year of operation. The tax form you need to complete is the F2044, which you can view and download from here.

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.

Whilst you will not be required to produce the invoices and receipts for the purposes of the tax declaration, you can later be asked to produce them by the tax authority.

4.4.3. Social Charges

In addition to income tax, the main other tax for which a landlord is liable is the social charges, called the prélèvements sociaux CSG/CRDS, (and also otherwise known as contributions sociales), at the rate of circa 12.1% on net rental income. This charge is deductible against income tax at the rate of 5.8%. Non-residents are not liable for these charges.

4.4.4. Special Tax Regimes

There are a number of special tax regimes that are available to landlords who are prepared to let a property on a concessionary basis for a minimum period of nine years.

There are also investment funds that offer the possibility of investing in this type of letting.

They are only likely to be of interest to those with a high marginal rate of taxation on their income.

Chief amongst the schemes are those of ‘Robien’, ‘Borloo’ and ‘Besson’, named after the politicians who introduced them.

Needless to say, you are strongly advised to take professional advice before you choose to invest in one of these schemes.