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

Whilst rental income from furnished property is taxed under the tax regime of Bénéfices Industriels Commerciaux (BIC) outlined above, 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. In addition, all landlords are liable for the social welfare levy.

1. 4.4.1. Micro-Foncier
2. 4.4.2. Regime Réel
3. 4.4.3. 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.

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 turnover 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 purchase, repair or improvement of a rented property or 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.

Provided you continue to let property for at least three years, losses up to €10,700 a year can be carried forward on your total 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.

Accordingly, losses on one property can be offset against the rental profits on another rented property.

Losses charged against global earnings are only permitted where you continue to let the property for three years and interest costs are formally excluded from being able to be charged against global earnings. These can only be charged to your revenues fonciers.

In practice, provided interest costs do not exceed gross rental income, the tax authority may well allow them to be deductible from global earnings. Local offices seem to interprete the rule on this point differently.

So, 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.

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 do so for them by the tax authority.

4.4.3. Social Welfare Levy

In addition to income tax, the main other tax for which a landlord is liable is a social welfare levy called the prélèvements sociaux, (and otherwise known as CSG/CRDS), at the rate of circa 11% on net rental income. This charge is deductible against income tax at the rate of 5.8%.

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.