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Can we go back to regime réel to run our letting business in France?

Switching taxation regimes is possible under certain circumstances

Under income tax rules, it is possible to be taxed with the deduction of actual expen­­ses, or on a forfait basis, called the micro regime Pic: Pranithan Chorruangsak / Shutterstock

Reader question: Four families bought a house via an SCI [a French company created for the ownership and management of property] in 1989. In 2004 my family bought the others out to run it as a letting business. We used to make a declaration which let us claim expenses – gas, water, electricity, local taxes, etc. In 2019 our accountant changed this so we are now taxed as a gîte with 20% tax on 50% of the income. This has made a big difference. Can we change back?  B.R.

You say that you run the property as a letting business but was this as individuals having the free use of the SCI asset, the house, to let yourselves, personally, or was the letting business run from the SCI?

If the business was run from the SCI, this would initially have been under corporation tax rules, declaring the income, less your expenses. 

One can later choose to change to be taxed under income tax rules but this means that instead of the SCI being taxed (corporation tax), it is one or more of the associates who become taxed. Note that this move is only one way and the tax authorities do not then allow a subsequent return back to paying corporation tax under the name of the SCI.

Under income tax rules, it is possible to be taxed with the deduction of actual expen­­ses, or on a forfait (tax after a fixed allowance) basis, called the micro regime. 

If the letting business has been run under income tax rules with the 50% forfait system it is possible to change to a real expenses system.

Permis­sion has to be requested from the tax office, at the latest by tax declaration time for the previous year’s income.

Under the forfait system, your expenses are accounted for, but at a fixed 50% of the income (71% for properties classified under the star system as meublés de tourisme), whether or not actual expenses are as much as this. 

Your accountant might have thought this was advantageous. 

We suggest checking with them as to why they made the change. 

The information presented above is of a 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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