Has anyone have a holiday home in France how do you go about paying tax on rental income?

Question

Has anyone have a holiday home in France how do you go about paying tax on rental income?

Answer 1

I assume from checking your questions and answers on this site that you are a UK resident which is something of critical factor.

As a Brit, if you have an income in France from renting out French property, the rental income will be liable to French income tax. UK tax is also be payable on the income, with a credit for the French taxes paid.

Non-residents pay French tax on the taxable income at a minimum rate of 20% and then at the scale rates up to 40% if the income is sufficiently high.

Taxable rental income is calculated under two regimes in France: Revenus Fonciers, applicable to income from land and unfurnished lettings; and Bénéfices Industriels et Commerciaux (BIC) applicable to income from furnished lettings, which is treated for calculation purposes like commercial income (although for other purposes it is treated as investment income unless you are in a position to adopt a professional approach).

Where the gross rental income (i.e. the total rental income before deductions) from furnished lettings is less than €76,300, the taxable income may be calculated under the Micro-BIC, a simplified scheme that simply taxes 32% of the gross income (i.e. 68% of the gross rental income is automatically deducted in place of actual expenses). No expenses need be demonstrated, no accounts are required and no separate tax forms for the business need be prepared. The main drawback of this regime is that it always shows a fixed taxable profit i.e. it can never show a lower net profit or a loss.

the turnover exceeds the above thresholds, you will automatically fall within the income and expenditure method of calculation, the Régime Réel Simplifie (RRS). Under this method, actual expenditure related to the letting of the property is deducted e.g. management expenses; insurance; property tax; mortgage interest due in France; depreciation allowance; repairs; maintenance and improvement expenditure (generally where the property has been modernised, or made more comfortable, but where the structure of the property has not been changed). Improvement costs related to rebuilding or expanding your property are tax deductible for capital gains tax purposes only.

Alternatively, should you make a loss or your expenses exceed the fixed ‘Micro’ deductions, you may opt into the RRS. Such an option is currently valid for a minimum period of two years, and due consideration should be given as to whether the additional costs of preparing near-full accounts and separate tax forms outweigh any tax saving made. In some circumstances, the option may be more beneficial, such as where there is a high level of expenses (e.g. a large amount of mortgage interest), if this gives rise to a loss which can be carried forward and set against future profits. There are also strict restrictions on the timing of such an option.

With enough income it may be possible to register as a professional furnished landlord (loueur en meublé professionnel) and this does have some advantages with respect to French taxes, such as capital gains and wealth taxes. This is not necessarily suitable for non-residents of France because you will not be able to apply the Micro-BIC to the income, and it brings you fully into the French self-employment system. Also, for non-residents of France, although the French capital gains tax may be reduced, any UK liability will not be similarly reduced.

If the property is held in an SCI (a private French property-holding company) or by a non-French company, the Micro regimes cannot be applied to rental income, and any tax savings from operating the RRS may be lost in additional accountancy bills. If an SCI lets a furnished property, the income becomes subject to corporation tax, not income tax. In any case, corporate ownership is not usually recommended where you will use the property yourselves if you are UK resident, because if you control a company, and are provided with free use of a company asset, such as a French property, the UK Revenue & Customs will seek to tax you on the benefit provided by the company. Where the property is never let, the charge can be quite high, particularly if you pay UK income tax at the highest rate (currently 40%). There are additional penalty taxes if the property is owned via a company in a country considered an ‘offshore’ tax haven by France.

Does that help?