Should we let out furnished or not?

We are relocating to France and propose to rent out property to supplement our pension but we are undecided whether to do so on a furnished or unfurnished basis.

LETTING of furnished property through holiday gites has been the traditional approach adopted by most expats and there are good reasons for this: Rental income can be higher, the tax breaks more generous and the security of tenure issues non-existent for furnished holiday accommodation.

However, the costs of furnishing and maintaining a holiday gite are higher and the seasonal market means the property may be vacant for a large part of the year.

Sometimes the decision makes itself. If you use your second home for only a few weeks, letting it out to holiday makers at other times of the year is clearly the only option. Similarly, if your gite is within the grounds of your main home, it is likely the most appropriate market is furnished holiday lettings.

However, having shared use of your pool and grounds for most of the summer is not everyone’s idea of heaven, either for the owner, or for the holiday makers.

Plus, managing the lettings and changeover process, maintenance and cleaning, changing linen and entertaining guests is not something everyone who retires to France wants to do.

The tax advantages from furnished rural holiday lettings are also really only stronger if you decide to adopt the fixed allowance "micro" system, under which you receive an abatement of 71% against rental income. This compares with a fixed allowance of 30% for unfurnished property.

However, if you choose to be taxed on the basis of actual costs and charges (regime réel) then the tax advantages are less evident. In both cases, under the regime réel you are able to charge interest against rental income, as well as carry forward losses (but get accounting advice, as rules apply).

The worry for most expats are the security of tenure laws in France and this is a legitimate concern if you are proposing to rent on an annual basis.

It can take three or more years going through the courts to recover a property from a non-paying tenant and no absolute guarantee you will succeed.

However, this concern applies whether the property is furnished or unfurnished, if it is the tenant’s main home. If you let on an annual basis, you need to select tenants with care, and take out insurance against non-payment of rent.

One reason, therefore, why many expats prefer to restrict renting only to holiday makers.

Another approach is to try and tap into the short-term unfurnished market, such as accommodation for those relocating to France who seek to rent before they buy. Most need a property for six months or more to decide on an area, and find somewhere to buy, but bring their possessions with them from a house they have sold in the UK or elsewhere.

But whether furnished or unfurnished, the annual or holiday market, it pays to consider your strategy before you buy, so that you are clear on the market potential and the legal and management issues surrounding your choice.

In particular, you need to be careful about rental expectations, as there is a surfeit of holiday rentals in many parts of France and the return available in rural areas is generally poor.

Buying a large pile to which you can retire may sound great, but it may make more financial sense to buy two smaller properties, one in the countryside for yourselves, and one in the city centre that you can rent out successfully.