Tax and Rental Income on French Property
Tuesday 04 March 2008
Renting out a French property is a tax efficient method of earning an income in France, but different approaches bring their different rewards.
If you are proposing to rent out French property, then your first consideration will need to be whether to let on a furnished or unfurnished basis.
You choice will no doubt be guided by many factors, not least the level of demand for the each type of accommodation, and legal implications of furnished over unfurnished accommodation.
However, one of the considerations also needs to be the fiscal implications of each type of letting.
In France, the tax treatment of furnished and unfurnished rental accommodation is not the same, with far more generous tax breaks for furnished accommodation.
Broadly speaking, whether you let furnished or unfurnished accommodation, you have the choice of fixed percentage tax allowance against rental income, or the deduction of actual eligible costs.
In the case of unfurnished accommodation, the fixed tax allowance is 30% of rental income. However, in the case of furnished accommodation it is a mouth watering 71%.
This means that if you let unfurnished accommodation you are liable for tax (and 11% social welfare levy) on 70% of your income, whilst for furnished lettings this liability only arises on 29% of income.
In either case, if your actual costs are higher than the fixed percentage allowances that are available to you, you can opt to charge these costs against your rental income.
Eligible costs include not only the standard costs of management and maintenance, but also interest charges incurred in connection with the acquisition of a property purchased for letting purposes.
Even if you purchase the property on a cash basis, if you later need to borrow to undertake renovation works, then these costs are also deductible.
If your actual costs exceed your rental income, then these losses can be carried forward into subsequent years, although there are limits on the amount and duration over which this can occur.
Not only are there interesting tax breaks for landlords, but those who are willing to let the property out on a long-term basis are also eligible for grants to upgrade a sub-standard property.
These grants are not overgenerous, and they should not be a reason for buying a property to rent, but given the generally low level of rents in France, they may tip the balance on a marginal investment.
If you do take the grant aid route, you will need to commit to rent out the property for a period of nine years and to offer the property for letting at a controlled rent. Although this sounds alarming, there are grounds for being able to terminate the duration of the letting commitment, and the controlled rental levels are not ungenerous.
Sadly, all of these advantages only apply to those who are resident, because despite the tax concessions in France, rental income earned in France is also taxable in the UK, although there is relief against being tax twice on the same income. Similarly, the grants are only available to those who are tax resident in France.
You can read more about letting in France in our in our guide to Letting French Property.
You may also be interested to read our recent article on Rule Changes on Running a Chambre d'hote in France.