Non-professional furnished rental meet a precise definition and are subject to a particular tax and social regime. We will briefly describe the rules related to this activity.
The Finance act for 2024 made significant changes mainly concerning the rental of unclassified furnished tourist accommodation.
We will first give a definition of classified tourist accommodation, but you can however refer to our article THE DIFFERENT CATEGORIES OF TOURIST ACCOMMODATION AND THEIR REGULATIONS, in order to better understand the various forms of tourist rental.
To designate non-professional furnished rental, we will use the acronym “LMNP” (from “Location Meublée Non-Professionnelle” in French) throughout this article.
I – Definition of LMNP
- This is the rental of apartments equipped with furniture and sometimes accompanied by services (guest rooms, residential hotels, etc.). In those of an apartment rental, it must include all the elements necessary for normal occupation by the tenant. The list of these elements is provided by the decree N ° 2015-981 of July 31st 2015.
- Furnished tourist accommodation means: individual accommodation such as a villa, apartment or furnished studio offered for rental.
It must notably include the following equipment:- Furniture
- Bedding
- Gas stove or hotplates
- Fridge
- Cooking tools
This activity requires registration in the INSEE Sirène directory (without French legal filing fees) on the website of the business formalities desk. You must also make a declaration to the town hall and, in certain large municipalities, it is necessary to request authorization for change of use.
- To obtain the classification of a furnished tourist accommodation: you must make a request to the accredited or approved assessing body of your choice (appearing on the lists on the “Atout France” website) using form No. 11819* 03.
The assessing body visits the accommodation. In the month following this visit, he will give you a visit certificate including the inspection report as well as the proposed decision to classify the furnished accommodation for the category mentioned in the inspection report. - Here is how the administration defines the activity of furnished rental: “premises comprising all the furniture essential for normal occupancy by the tenant” (BOFiP-BIC-CHAMP-40-10-§ 1-05 / 02/2020; instr. adm. July 28, 2009, BOI 4 F-3-09).
Note that the furnished rental activity is a civil activity at the legal level while it is a commercial activity at the tax level. - In terms of income tax, the furnished residential rental activity is carried out on a professional basis (LMP) when the following two conditions are met (CGI article. 155, IV.2):
- The annual income (incl. VAT) withdrawn from the furnished rental activity by all the members of the tax household must exceed € 23,000;
- This revenue exceeds the other income of the fiscal household subject to income tax in the categories of salaries and wages within the meaning of article 79 of the CGI, industrial and commercial profits other than those derived from the rental activity furnished, agricultural profits, non-commercial profits and the income of managers and associates mentioned in article 62 of the CGI.
As a result, any person who rents furnished dwellings and who does not meet one of the conditions listed above is qualified as LMNP.
- Nevertheless, LMNP must register as a non-professional at the registry of the commercial court on which the property depends.
- Distinction between long-term rental from seasonal rental:
A furnished rental is said to be seasonal when the accommodation is rented per night, week or month, and for a maximum period of 90 consecutive days, to passing customers who do not take up residence there.
When the accommodation is rented for a period of one year (or 9 months for a student) and the tenant makes it their main residence, this is referred to as long-term rental.
For residences with hotel services rented to an operator via a commercial lease, the owner of the accommodation is deemed to be doing long-term rental.
II – Tax characteristics
Exemption cases
Income from the furnished rental of part of the principal residence is not taxable in the following cases:
- When the rented rooms do not constitute the main residence of the tenant if the annual rental income does not exceed € 760. It can be an occupation by the day, the week, the month, etc.
- When the rented rooms are the main residence of the tenant. In this case, the rental price must be lower than a threshold published each year by the administration.
Taxation schemes
All furnished rental income is taxable in the category of Industrial and Commercial Benefits (B.I.C.).
- Micro scheme
- Renting a house or furnished apartment for a long term: this tax regime is applicable provided that the annual revenue is less than €77,700 excluding tax. In this case, the taxpayer enters the total of his income on the supplementary income tax declaration (no. 2042 C-Pro). He will be taxed at the income tax scale, after a flat rate reduction of 50% with a minimum of €305 representing the charges.
- For rentals in furnished tourism classified and bed and breakfast: the turnover limit to benefit from the scheme increases to €188,700; the flat-rate reduction rate representing charges amounts to 71%.
However, for rentals of this type carried out in a “non-tense zone” (see definition below), the taxpayer benefits from a flat-rate reduction of 92% applicable, in principle (we are currently awaiting formal confirmation), at from 2023 revenues. This increased reduction is however applicable on the condition that income from the previous year does not exceed €15,000. - Unclassified furnished tourist accommodation (regime resulting from the Finance act for 2024): the annual income threshold is €15,000, and the standard reduction is reduced to 30%.
Concerning 2023 income, the administration admits that taxpayers can continue to apply the previous law. Renters of unclassified furnished accommodation will thus be able to continue to benefit from the limits of €77,700 and the 50% reduction for their income for the year 2023.
Note: the 30%, 50%, 71% or 92% deduction includes all expenses including depreciation allowances. It cannot be allowed to result in a fiscal deficit.
Definition of “tense areas”: these are areas of continuous urbanization of more than 50,000 inhabitants where there is a marked imbalance between supply and demand for housing, leading to serious difficulties in accessing housing. The government has set up a simulator to find out if the municipality where the rental property is located is in a tense zone, click here to obtain this information.
- Real scheme
This tax system makes it possible to deduct all the expenses actually incurred, including depreciation charges on all investments.
There are two points to note, however:
- The depreciation charge cannot exceed the difference between the total rents collected and the total of other expenses. This means that depreciation cannot generate a deficit. The non-deductible portion of depreciation can be carried forward without limitation.
- In the event of a deficit, when the expenses are higher than the rents collected, this one can only be carried forward on the profits of the 10 following years of LMNP.
We specify that to date, the tax regime seems provisional, in fact, the government wishes to carry out a global reform of the taxation of rental property income which should be included in the Finance act for 2025.
VAT
The rules for professional and non-professional renters are the same.
The rate is in principle 10%, but the furnished rentals of dwellings are exempt from VAT.
Only the following rentals are subject to VAT:
- Accommodation in classified residences or tourist hotels;
- The provision of a furnished room with services similar to those offered by the hotel establishments;
- Rental of bare premises to the operator of a hotel establishment.
There is a VAT exemption on furnished rentals subject to this tax, when the total rent received by the lessor during the previous year does not exceed the threshold of 82,800 euros (excluding taxes).
Tax reductions
We indicate this system is still in progress for taxpayers who invested between 2019 and 2022, but it should be noted that it is now impossible to use it for new investments. In fact, this tax reduction was stopped on December 31st 2022.
A tax reduction of 11% of the amount of the investment capped at € 300,000 can be obtained with the device named “CENSI-BOUVARD”. The main conditions briefly summarized are as follows:
- Purchase of new or newly renovated housing;
- Assignment of housing to a type of structure provided by the device;
- Leasing commitment by the taxpayer for a period of 9 years.
Various taxes
- CFE: all furnished renters are indebted. However, exemptions exist in the following cases:
- Occasional rental of part of the main residence;
- Current rental of part of the principal residence at a reasonable price;
- Rent of all or part of the main residence in furnished tourism. In this case the local authority may oppose the exemption.
- Tax on real estate fortune (IFI): since the activity is not professional, the value of the premises must be included in the IFI base. However, in certain cases, buildings owned by the taxpayer and assigned (by him or by an intermediary company) to his furnished rental activity are totally or partially exempt from IFI if the following conditions are cumulatively met:
- The owner, a natural person, carries out this activity as his main activity and generates more than €23,000 in annual revenue.
- And he withdraws from this activity more than 50% of the income of his tax household subject to income tax under the following categories: salaries and wages, industrial and commercial profits, agricultural profits, non-commercial profits, income of managers and associates.
- Capital gain: In the event of an assignment of the property, the capital gain will be taxed according to the personal capital gains regime provided for in article 150 U of the C.G.I.
III – Specificities of the rental contract
The furnished lease must be written, it is concluded for a period of one year (instead of three years in the case of an unfurnished lease) with tacit renewal.
There are also two special cases of leases:
- For a student: lease of nine months without renewal,
- “Bail Mobilité”: with a duration of one to ten months, for a person who seeks to lodge temporarily.
IV – Social regime
Activity carried out as a sole proprietorship
- Social scheme on rental income
The LMNP is not subject to social security contributions on labor income if it meets the conditions set by the tax administration (income less than € 23,000 including tax and less than other professional income of the tax household).
If he is a seasonal rental company, the sole condition of achieving an annual turnover not exceeding € 23,000 is sufficient to be exempt from social security contributions on earned income.
In these two cases, the income from the furnished rental is taxed with social security contributions on income from assets (at the rate of 17.20%).
- Social regime on capital gains
The LMNP is taxed under the real estate capital gains regime for individuals on real estate capital gains realized within the framework of this activity.
Activity carried out in a tax-transparent company
These companies are those for which the partners are taxed with income tax on the amount of their remuneration and on their share of profit. The company is not taxed in corporation tax. This mainly concerns the partnerships (SNC), the EURL and the family SARL.
Here the criteria for distinguishing between professional and non-professional lessor are at the level of management, depending on whether it is majority manager or not.
- Majority managers are subject to all social security contributions from self-employed workers calculated on their share of the profit, whether or not it is distributed and, where applicable, on the remuneration allocated by the company.
- Minority managers are subject to employee social security contributions excluding unemployment insurance on the basis of their remuneration. On the other hand, their share of the BIC is taxed as social security contributions on income from assets.
- The other partners are taxed with social security contributions on income from assets of 17.20% on their share of BIC.
- Regarding capital gains, the criteria are identical to those for furnished rentals in a sole proprietorship. It is therefore necessary to determine whether each partner is professional or non-professional according to the criteria used for the calculation of income tax (see above: Definition of LMNP).
Activity carried out as a company subject to corporation tax
In this hypothesis, there is no specificity linked to the furnished rental activity carried out by the company. Income and capital gains fall within the scope of corporation tax. The question of the social system is irrelevant.
V – The situation of non-residents at the tax level in France
Definition of LMNP for non-residents
The non-resident working in a sole proprietorship will have LMNP status within the meaning of income tax if he meets the following two criteria:
- the worldwide receipts from the furnished rental activity are less than or equal to € 23,000 including tax;
- the annual income withdrawn from the furnished rental activity by all members of the tax household must not exceed the other income from activity of the tax household taxable in France.
Social scheme for rental income
As we saw above, LMNP income is not subject to social security contributions. Thus, as soon as a non-resident receives less than €23,000 from furnished rental products, he will most of the time be exempt from social security contributions. Indeed, other income from French sources is often low for non-residents.
Regarding social security contributions, people residing outside the European Economic Area or Switzerland are subject to a levy at the rate of 17.20%. On the other hand, non-professional renters who are covered by the social security regime of an EEA state (European Union, Iceland, Norway, Liechtenstein) or Switzerland, bear a levy whose rate is reduced to 7.50%.
Indeed, LMNP residing in one of these States are exempt from paying the CSG and CRDS, but remain liable for the solidarity levy.
Real estate capital gains tax regime
A withholding tax at the rate of 19% is applicable on the taxable capital gain calculated according to the rules applicable for private real estate capital gains.
The status of LMNP responds to a very large number of particular rules that we cannot expose here in their entirety. Do not hesitate to contact us for any question on this subject!
