Non-professional furnished rental meet a precise definition and is subject to a particular tax and social regime. We will briefly describe the rules related to this activity.
The important point of this reform comes from the new tax definition of the non-professional lessor and the alignment for a large part (long-term rental) of the social system with the tax system.
To designate non-professional furnished rental, we will use the acronym “LMNP” 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 the case 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.
- 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 VAT) withdrawn from the furnished rental activity by all the members of the tax household must exceed € 23,000;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.
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:
A 50% deduction from the declared receipts is automatically applied by the administration in the case of rental of furnished apartments and furnished rental of unclassified tourism.
The rate of the abatement goes up to 71% for rentals in furnished tourism classified and bed and breakfast.
For the rented property to be qualified as a tourist accommodation or a bed and breakfast, the taxpayer must file a declaration with the town hall of the location of the rented property.
The 50% or 71% deduction includes all expenses including depreciation allowances. It cannot be allowed to result in a fiscal deficit.
- 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.
V.A.T:
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 V.A.T.
Only the following rentals are subject to V.A.T:
- 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.
Tax reductions:
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:
- C.F.E: 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.
- Housing tax: it is due by the tenant if he occupies the dwelling permanently (generally as a principal residence).
It is due by the lessor if the rented premises constitute his dwelling or if he reserves the possibility of occupying them during a period of the year.
- Tax on real estate fortune (I.F.I.): since the activity is not professional, the value of the premises must be included in the I.F.I base.
- 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 mobility of a duration of one to ten months for a person who seeks to lodge temporarily.
IV – Social regime
Before describing the various social contributions, it is important to distinguish 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.
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 (S.N.C.), the E.U.R.L. and the family S.A.R.L.
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:
From a social standpoint, rental income has the nature of income from property and, taking into account of article L. 136-6, I bis of the social security and article 164 B of the CGI (which does not mention the income from non-professional furnished rental), non-residents with LMNP status in the fiscal sense are not subject to the CSG or to the CRDS on income withdrawn from the furnished rental activity.
Concerning the solidarity levy of 7.50% due by non-residents, Article 235 ter of the CGI refers to Article L. 136-6 of the Social Security Code and provides for the same condition of subjection as for the CSG and CRDS. Consequently, the solidarity levy of 7.50% is not applicable.
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, we will strive to answer you as soon as possible and provide you with as much detail as possible.
