Regimes for rentals

If you decide to make your living in France from renting out property, you will have a number of different tax regimes to choose from, as Bill Blevins explains.

Some buy French property and rent it out when they are not using it. Others plan on retiring to France but buy a property now, using it to generate rent as a source of income or to pay the mortgage. Rental income generated from French property is always taxable in France, and if you are UK resident, is liable to UK tax as well, although under the France/UK Double Tax Treaty, the French tax paid can be offset against the UK liability to avoid double taxation.

If the UK tax exceeds the French tax paid, the difference will have to be paid in the UK; if less, then the French liability is paid in France and no tax is payable in the UK, but no repayment of the French tax will be made in the UK. Non-residents of France pay French income tax at a minimum rate of 20 per cent, although if your worldwide income is low enough, so that as a French resident you would pay tax at a lower rate, your worldwide income can be taken into account in France (although not taxed there) to calculate the effective tax rate on the rental income, known as the taux effectif. If you move to France and become a tax resident there, your worldwide rental income is added to your worldwide income and taxed in France at the progressive scale rates. You will also be liable for social charges at 11 per cent.

Different regimes There are several ways of calculating taxable rental income in France, and here is a brief summary of the different regimes:

Micro-BIC (bénéfices industriels et commerciaux)

This applies only to furnished rental income from personally owned properties (including gîtes), and is a simplified deduction scheme which can be used if the gross rental income is less than €76,300 (£60,460). The micro-BIC regime taxes only 29 per cent of the gross income, with the remaining 71 per cent treated as a deduction in lieu of actual expenses. No accounts, documented expenses or separate tax forms are required.

Micro-foncier

The micro-foncier regime applies to unfurnished lettings and is similar to the micro-BIC regime in that actual expenses are not deductible and accounts are not required, but the thresholds and percentages are different. Where total gross income from unfurnished lettings is below €15,000 (£11,886) per year, you can deduct a flat 30 per cent as expenses, leaving only 70 per cent of the gross rental income liable for tax. If the property is held in a private French property holding company known as an SCI, the micro regimes cannot apply to rental income.

RRS (régime réel simplifié)

The RRS regime applies to rental income up to €763,000 (£604,596) and you deduct the actual expenses of the letting, so it is possible to generate a loss. However, this regime does require preparation of near full-blown accounts to French accountancy standards and additional tax forms, and is therefore more costly to administer than applying a micro regime. The range of deductible expenses is broad, including all maintenance, restoration and running expenses such as management costs, insurance, property tax, interest on a mortgage (French or from elsewhere) providing it was taken out to fund the property’s purchase, depreciation allowance and repairs. Rebuilding or enlargement costs are not deductible against rental income

Régime réel normal

This regime usually applies to businesses whose annual turnover is more than €763,000 (£604,596). A full set of accounts, together with all supporting documentation, must be submitted to the French tax authorities each year. There are also specific record-keeping requirements under this regime, and all documentation should be kept for a period of 10 years.

Loueur en meublé professionnel (professional furnished landlord – PFL)

If you become a French tax resident and have several furnished properties (wherever they are located), you may decide to register as a loueur en meublé professionnel. This is not usually suitable for nonresidents, because a PFL would normally automatically be registered to pay social security and health-care costs as a self-employed individual in France. The micro-BIC cannot be applied to rental income under this regime, and although PFL status may provide advantages in terms of capital gains tax or wealth tax, any UK liability to UK capital gains tax will not be similarly reduced. In order to register as a PFL you must have a turnover in excess of €23,000 (£18,225), or to be in a situation where the furnished rental activity represents at least 50 per cent of your total income (and for the properties to be exempt from wealth tax, you must satisfy both criteria).

Chambres d’hôtes

If you buy a property in France and treat it as your main home and let rooms to guests it is known as chambres d’hôtes. This became a regulated activity in France in August 2007. The rental income is taxable as income from furnished lettings, and so the micro-BIC can be applied if the income is within that limit, unless it is below €760 (£602) per year in which case it is exempt.

However, to qualify, the following conditions must be fulfilled:

• The maximum number of guest rooms in the house is five, with a maximum capacity of 15 people in total
• Overnight accommodation and breakfast must be provided
• Bed linen must be provided as a minimum
• Each guest bedroom should have access to a shower room and toilet
• The owner must provide reception facilities
• The activity must be declared in advance with the local mairie (town hall) and receipt of the declaration must be acknowledged. If you rent out a room in your own home to someone on a more permanent basis (so it is their main home) and the rent is within reasonable limits (currently up to €118 [£94] per square metre) then the income is wholly tax free.