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What are the tax rules on gites?

The taxation of rental income from furnished lettings is the subject of some confusion

Gite owners will need to keep a closer eye on their tax assessment in future, as the taxation of rental income from furnished lettings has been thrown into considerable disarray this year.

The confusion has arisen as a result of changes to the tax allowances for landlords of furnished accommodation.

As a small landlord in France, you can choose to be taxed on the basis of a notional profit, after deduction of a fixed standard allowance for costs, or on the basis of your actual profits, after deduction of your actual eligible expenses.

If you choose to be taxed on the basis of a fixed allowance for costs then, since January 2009, the level of allowance will depend on the type of accommodation you let.

All furnished accommodation let on an annual basis has a fixed allowance of 50% against costs. This means you will be liable for tax (and social charges) on 50% of your rental income.

For example, if your rental income on a furnished flat in the year was e10,000, you would be liable for income tax and social charges on €5,000.

However, holiday accommodation such as chambres d’hôtes and rural gites are granted a more generous allowance of 71% against costs. This means you will be liable for tax (and social charges) on 29% of your rental income.

The government originally proposed that all furnished lettings would have a 50% cost allowance, but as a result of successful last-minute lobbying by the Fédération Nationale des Gîtes de France against any reduction in the allowance, seasonal lettings got a reprieve.

Such was the scramble at the time to get the clause included in the relevant bill going through the French parliament that no definition was given in the legislation to a gite rural.

Recent guidance from the French tax authority indicates that it is not necessary for a gite owner to be affiliated to the Gîtes de France to be eligible for the higher cost allowance. This would seem to confirm that all rural properties let as furnished holiday accommodation would qualify for the higher allowance.

However, in a recent response to a parliamentary question, Finance Minister Christine Lagarde, stated that, in order to qualify for the higher tax allowance, the letting would also need to be for more than the simple use of the property.

The minister said that gite owners would have to offer at least three out of four listed services – cleaning of the property, change of linen, breakfast and greeting of guests.

On this basis, most gite owners should qualify for the higher allowance, although you would be well-advised to examine your tax notice with care to ensure that you have been granted the higher allowance.

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