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Options for costly rental plan for SCI studio

We own a flat and a studio under an SCI. They are empty most of the year but we use the flat for holiday visits. We plan to rent the studio on a yearly basis but are told the SCI might make it costly, despite earning less than €6,000/year. Should we split the studio from the SCI and what is involved? Alternatively, would renting under the SCI make taxes on the rental prohibitive? We are retired with no French income and pay property taxes on both the flat and studio. N.M.

An SCI can rent out property, but profit is liable for corporation tax and then, should you take this out of the SCI for your own use as either dividends or salary, this net profit (the profit less the corporation tax) is taxed again.

An advantage of an SCI is that through the statutes or a minute of an annual or extraordinary general meeting, the use of the SCI-owned property can be given to one or more of the associates of the SCI, who would then also accept to be responsible for settling its property tax liabilities.

This would mean no accounting for the SCI, saving a fair amount in accountant fees.

Further advantages are that taxation of the rental income would be on the associates as individuals, would fall under income tax, and these associates can use the Micro BNC system.

There are different methods, with one taxing 50% of the income, giving a tax-free expenses allowance of 50% and another which will tax just 29% of the income and give an allowance of some 71%.

For the first, there are two ways to set up:

  • As a business, where the lets are not part of the main home. As a business, business social charges will be due at some 34% of the taxable income. This is what would apply to you if renting the studio for the whole year or for part of the year not as holiday or tourism accommodation. This income is declared in boxes 5ND and 5PD on the 2042 C Pro form. You must however formally set this activity up as a business.
  • As a holiday or tourism let of ‘unclassed’ properties, and as these lets are not considered business income, normal social charges will apply at 15.50%. This income is also declared in boxes 5ND and 5PD on the 2042 C Pro form. Note, however, that holiday lettings are for no more than three months’ maximum at a time.

For the second method, with 29% of income liable to tax, the holiday letting activity would be ‘classed’ under the star system.

The tax-free expenses allowance of 71% partially reflects the costs of ‘empty’ weeks, and, again, social charges at 15.5% will apply.

Evidently, the type of letting you do will determine the means by which the income is taxed, and the level and type of the social charges. 

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The information in this article is of general nature. You should not act or refrain from acting on it without taking professional advice on the specific facts of your case. No liability is accepted in respect of these articles. These articles are intended only as a general guide. Nothing herein constitutes actual financial advice.

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