A CHANGE to the way tax is calculated on those running a gite accommodation business is slowly progressing through the French parliament.
Here regular contributor to the site, lawyer Guillaume Barlet, takes a look at the possible implications for those who are considered to operate a location en meublé professionnel or non professionnel.
The French budget for 2009 is currently under scrutiny and although it has not yet been voted, one of the main provisions of the bill concerns the “niches fiscales” which allow, in certain circumstances, a cut or exemption in a taxpayer's tax liability.
The advantages and simplicity of location en meublé professionnel and location en meublé non professionnel have made this niche fiscale very popular.
However, should the rules mentioned above be enforced, it seems that the advantages of such status would be under threat and deter some people to use this type of wealth management.
Location en meublé non professionnel
If your French property is rented out and the rental income does not exceed €23,000 per annum, or does not exceed 50 per cent of your total annual income, you are likely to be a loueur en meublé non professionnel (i.e. furnished property lessor not registered at the Trade and Companies Register).
Under this status, such income will be regarded as bénéfices industriels et commerciaux or BIC (i.e. assimilated as a business income) which can be subcategorised into:
- micro-BIC where the taxable income is calculated on 50 per cent of the gross income,
- régime réel where the taxable income is calculated on the net profit after deduction of expenses.
This status only allows deduction of losses on income of the same nature for the current year and the following five years.
Location en meublé professionnel
If you have made a business of renting out your French properties and the rental income exceeds €23,000 per annum, or exceeds 50 per cent of your total annual income, you are likely to be a loueur en meublé professionnel (i.e. furnished property lessor registered at the Trade and Companies Register).
Under this status such income will also be regarded as BIC.
This status allows deduction of losses on your total income for the current year and the following five years.
It also allows, in certain circumstances, to be exempt from capital gains tax on the sale of your French properties, to withdraw the value of the properties from the wealth tax calculation and to be exempted for up to 75 per cent of tax when the properties are gifted during your lifetime.
What the changes may bring
Although the budget 2009 has not yet been voted, it is likely that the location en meublé will be altered.
Conditions of the status of location en meublé professionnel may be combined so it would be necessary for your rental income to exceed €32,000 (rather than €23,000) per annum AND exceed 50 per cent of your business annual income.
Micro-BIC could be applied provided the rental income does not exceed €32,000 per annum and the taxable income would be calculated on 50% of the gross income (rather than 29% currently).
The location en meublé non professionnel may well be likened to the basic rental income tax regime where losses can be deducted from your total annual income up to €10,700.
Alternatively, “micro-foncier” can be chosen if your gross rental income does not exceed €15,000 per annum as it will allow you to reduce 30% of your taxable income.
With this new measure the intention is to target top earners who have so far been able to avoid tax liability because of their status as loueur en meublé professionnel.
Nevertheless, it is important to note that for your total annual income, pensions should not be included in the calculation. Therefore, retired pensioners with rented out French properties would benefit from this new system.
Guillaume Barlet is a French lawyer specialising in French assets and wealth management issues for Bank House Investment Management Limited. Guillaume can be contacted by e-mail or by telephone on 01242 520074.
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