For tax purposes, letting furnished properties is seen as a commercial activity and the income is therefore taxed as business profits called BIC (Benéfices industriels et commerciaux). On the other hand, income from unfurnished lettings is not seen as being derived from a business activity but from the ownership of real estate. For this reason, it is taxed as property/land income called Revenus Fonciers.

This distinction also explains why an SCI, a civil holding company, should not rent properties furnished because it would be deemed to a trading activity and adverse tax consequences would be triggered (in particular corporation tax). There may be a way around this but extreme care is needed.

General income tax rules

Even if you are not domiciled in France, you should nevertheless declare the income derived from a French based property to the French Revenue. In addition, if you are a UK resident, you also need to declare this income in the UK as part of your worldwide income. However, in order to avoid double taxation on the same income, there is a treaty in place between France and the UK, which requires the English Revenue to grant you a tax credit equivalent to the amount of the French tax to set off against the portion of UK taxes attributable to the French property.

The taxation in France is per household, which means a joint tax form will be lodged by married couples and civil partners, in which the income from all their properties, owned jointly or separately will be declared. The threshold mentioned below is also per household.

The French tax year is the calendar year, and the income of a given year must be declared during the following year, by May for French residents, and by June for other EU residents.

Income from furnished / holiday lets

From 20 April 2009 the household's income would automatically fall within the scope of the simplified micro business profit scheme called "micro BIC" provided that the total gross letting income is below 32,600 € per calendar year. An automatic fixed allowance of 50% would be applied.

The previous threshold of €80,000 and fixed allowance of 71% only still relate to properties officially classified as rural gite, chambre d'hotes or registered tourism properties (meublés du tourisme).

French residents would be subject to their marginal rate of income tax.

Non-French domiciled taxpayers are taxed at a fixed rate of 20%. However they have the option to request the application of the French tax bands of income tax instead of the flat 20% rate if one is prepared to demonstrate to the French Revenue that had they been French residents, they would qualify for a lesser rate taking into account their worldwide income.

It is possible to opt for the normal scheme (called Réel simplifié) under which accounts need to be prepared. The real expenses are offset, instead of the 50% allowance mentioned above but on a pro rata basis. For example, if the property is only rented out for 3 months, only 3/12th of the annual expenses can be offset.

Income from unfurnished lets

The micro-Foncier scheme is automatically applicable to unfurnished lettings where the gross income per household is less than 15,000 €. An allowance of 30% will be applied. The remaining 70% will be taxed at 20% for non-French residents or at the marginal rate of income tax for French residents as described above.

It is possible to opt for the normal scheme called Foncier reel if one has more than 30% expenses or qualify for specific allowances (eg. those applicable to listed buildings). However the types of expenses which can be offset are strictly limited. Also any losses can be carried forward to be offset against future unfurnished letting income for up to 10 years.

You may wish assistance in returning the first set of tax forms. The following years, you should receive directly each year a copy of the forms to your home address.

© Marie Slavov - Blake Lapthorn

August 2011

Marie Slavov is an Avocat with Blake Lapthorn

Email: marie.slavov@bllaw.co.uk

Tel:023 9253 0346

Biography: Marie Slavov