Survival of the Fitests: Furnished Rentals France
As I explained in this earlier blog article, it is hard being a landlord in France. Landlords face both strong pro-tenant laws and well as a heavy taxation (say 25%) to which social contribution of 17% is added.
The problem is what constitutes net income as very few expenses can be deducted against that income for unfurnished rentals.
Recently, as I review the fiscal options for secondary home, I had a look at the LMNP status (location meublee non professionel).
The type of lease for LMNP is different and much more pro-landlord. It lasts only 1 year and though it is reconducible by the tenant with a limited increase, furnished rentals tenant tend to stay shorter term.
The fiscal policy for unfurnished rentals is the "regime foncier" which is subject to high marginal tax rate (floored at 25% for non-residents) and social contributions recently increased to 17%. The BIC (Benefice Industriels et Commerciaux) regime for LMNP is much more accommodating, as most expenses can be deducted, and capex can be amortized.
Here are the highlights:
- the lease agreement is for one year and landlord rights are significantly improved by that
- most business expenses can be deducted from the income, including amortization of capex over 20y.
- capital gains tax at the sale is computed based on acquisition value and not on the amortized value
- no need to be social contributions, therefore, provided that rental income stays below 70k euros/year.
- A VAT of 10% on work can be claimed back under certain conditions
More details here on the difference between LMP (over 70k) and LMNP.
With an estimated 80% of a property value in buildings depreciated over 20y (the rest being in land value), this gives rise to a 4% a year amortization charge. It greatly contributes to cancel declared profit.
The LMNP allows real estate investors in France to achieve much better profitability. Therefore, it is preferable to invest in goods that are suitable for this activity.
For more information on LMNP tax (in french), see: GUIDE LMNP: Payer moins d'impôts avec la location meublée (mis à jour septembre 2017) (French Edition)
|Click here to share this on BiggerPockets.com!|