NEW rules defining who is classed as a professional letter of furnished property have been set.
It is important to know where you stand as it affects how you are taxed. The issue of what taxation is involved when you rent out property is often misunderstood.
The key points to remember are:
- Income from renting - is defined as the receipt of income from the sole activity of renting property (whether furnished or unfurnished) or land and where no services whatsoever are provided.
- Income from chambres d’hôtes - is considered to be business income, not rental income, because a service of some kind is always provided.
- Income from a gite - is considered to be furnished rental income if no services are provided but if a service of any kind is provided, the income is treated as business income. These services could include, for example, changing sheets, cleaning or providing breakfast.
The taxation rules that apply to rental income and business income are different.
While the taxation of business income from chambres d’hôtes and gites providing services has not changed, the rules have changed with regard to those who rent furnished accommodation without providing services, in other words, those who offer just furnished lettings.
Article 90 of the Loi des Finances Rectificative 2009 and article 15 of the second Loi des Finances Rectificative 2009 have changed the fiscal regimes for those who let furnished accommodation. The government has just clarified how it works.
The rules define when a loueur en meublé (someone who lets furnished accommodation), providing no services, becomes a professional. The change is to exclude those who are just managing their estate from being considered to be professional letters.
As a result, to differentiate between those managing their estate and those having furnished rental income as their main source of income three rules have been established.
These rules (Code Général des Impôts art.151) define a professional letter as someone:
- Listed at the local chamber of commerce on the registre des commerces et des sociétés as a professional letter (although there may be exceptions where someone not registered would still qualify)
- Whose total household income from furnished lettings in any one tax year is more than €23,000, taxes (ie. VAT) included. Where the letting is carried out by the shareholders of an SCI, the threshold applies per shareholder and not to the income of the SCI itself. (Note that where the SCI itself has the right to rent the property, the income is assessed for French corporation tax.)
- That the household income from furnished lettings exceeds all other non-investment income - in other words, the furnished rental income exceeds income from pensions, self-employment and the like (but not investment income).
The consequences of these rules are:
- If the letter is found not to be a professional letter, then any losses incurred in a tax year cannot be set off against other income of the same tax year, but only carried forward against future profits from the same source, and for a limit of only ten years.
- For professional letters, the losses can be set against all other income, without limit in amount or time
- For non-professional letters, the situation is as for any private individual
- For professional letters the system is more complicated, dependent on the number of years the activity has been exercised, and there are exemptions available.
- Until 2008, as long as rental income did not exceed €76,300, the micro-bic system offered an abatement of 71% of the income but from the January 2009 these rates have been reduced in line with the new auto-entrepreneur ones and are - an income limit of €32,000, providing an abatement of 50%. Income above this would not qualify the letter for taxation under the micro system. So, if you have furnished rental income and provide no services, check you do not come within the above new limits or speak to a professional who can advise you.