A furnished accommodation can be rented for use as the tenant's main residence or on a seasonal basis, for occasional customers. What are the advantages? What is the taxation?
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As soon as you rent furnished accommodation, you have the possibility of being under the status of non-professional furnished lessor (LMNP) under certain conditions.
In fact, to be able to benefit from the LMNP status, your rental income must:
- be less than 23,000€ per year,
- not to exceed the total income of the tax household subject to income tax in the categories
- salaries and wages,
- industrial and commercial benefits,
- agricultural profits,
- non-commercial profits.
Moreover, to be under the LMNP landlord status, the accommodation must be rented furnished, which means that the tenant must be able to settle down, by bringing only his personal belongings.
What are the advantages of furnished rental (LMNP: Leaseback) and what is the applicable taxation?
The status of non-professional furnished landlord (LMNP) allows you to benefit from many advantages: simplicity of the procedures, flexibility of the LMNP status, tax advantages, deficit carry over, capital gain, etc.
Rent as the tenant's primary residence
The furnished rental must be equipped with all the furniture which is required for the housing. The lease must be rounded off for a minimum renewable period of one year (this period is reduced to 9 months for students, without an automatic renewal).
Good to note:
Certain LMNP may benefit from a conditional exemption. The revenue from a LMNP and received by people who are renting part of their main residence are not taxable:
- when the income from the LMNP does not exceed 760 € per year and it is a usual rental to people who do not take up residence there,
- when the rented rooms make up the tenant's main residence and the rental price is reasonable.
Furnished tourist accommodation rental
Whether it is your main residence or not, as a lessor with a leaseback, you must theoretically declare the accommodation as furnished tourist accommodation with the town hall of the municipality where the latter is located. The rule is the same if you rent rooms at home, including breakfast, (bed and breakfast) for one or more nights to tourists. This declaration is carried out through a specific form, which can be downloaded through the Internet (Cerfa form n°14004*2).
In addition, if the accommodation is located in a municipality with more than 200,000 inhabitants or more than 50,000 inhabitants in a tense zone, or in the inner suburbs of Paris, you need to submit a request for prior authorization, for a change in use with the town hall, so that you can rent it repeatedly for a shorter span of time to tourists. This open sesame is extremely tough to obtain in Paris. The capital city requires that owners transform a commercial space into a home. This declaration must enable you to obtain a number which appears on any rental advertisement. The landlord must check with the municipality where his furnished apartment is located, in order to be aware of the procedures, which apply.
If you go through an intermediary, whether it is a "classic" real estate agent or an Internet platform, you must give him a sworn certificate certifying that you have fulfilled all your obligations, mentioning whether the accommodation is your main residence or not, and duties, where applicable, along with the declaration number. If this is your primary residence, the intermediary will need to ensure that it is not rented for more than 120 days per year. He must keep a count of the number of nights which are occupied and if it exceeds 120 nights per year, the accommodation can no longer be offered for rent until the end of the current year.
Investing under the micro-bic regime and with the LMNP in furnished tourist accommodation allows the lessor to benefit from a reduction of 71%!
More information on furnished tourist rentals or on entreprise.gouv.fr
LMNP: what taxation?
Whether the activity is carried out on a regular or occasional basis, rents are subject to an income tax in the category of industrial and commercial profits (BIC). As a non-professional furnished landlord, you have two options: the flat-rate regime or the real system.
- As long as the rents do not exceed 70 000€ per year (170,000 € for a classified tourist accommodation), they are taxable under a simplified regime, known as system micro-BIC, this means calculating your taxable income under LMNP (leaseback) status by applying a 50% reduction to the amount of the rents which are collected (71% if classified as furnished tourist accommodation for the LMNP rental). 17.2% social security contributions are added if your income does not exceed 23,000€ per year. On the other hand, under the simplified regime of the LMNP status, you cannot deduct deficits.
- Beyond this threshold of 23,000€, your activity is considered to be exercised within the professional capacity and therefore you must pay the corresponding social charges (22.7%) just like a micro-entrepreneur.
As soon as you exceed 70,000€ or on simple request, you can become part of the full assessment system. In this case, instead of the 50% allowance, you have the option of deducting all charges (loan interest, taxes, work, rental management fees, trustee fees) from income and amortizing the purchase price of the property.
In terms of depreciation, it’s about spreading the purchase price of the property over its useful life-span. Once the term is chosen, you can deduct your depreciation rate each year. For example, for an asset valued at 200,000€ , the rate is 2% for depreciation over 50 years. Thus, 4,000 € will be deducted each year from the rents that are collected.
On the other hand, if you carry out a deficit by deducting charges and depreciation, it will not be a classic property deficit. This deficit will only carry over to future LMNP revenues. However, this deferral may allow you to not pay LMNP rental tax for several years.
Moreover, in the case of resale of the property under the LMNP regime, the applied depreciation is not reinstated while calculating the capital gain.
Note: Investing in a new serviced residence can allow you to combine the tax advantages of LMNP with tax exemption measures. However, the furnished rental company is subject to VAT if it carries out an activity of a para-hotel nature or rents the furnished property to a para-hotel operator (i.e. serviced residences).
To ensure greater security, it may be suitable to have the lease drawn up by your notary. In the event of a payment incident for example, the value of this document allows you to go directly to a bailiff without having to first obtain a court decision.
Reminder: As a furnished rental company, you must register. To be able to benefit from the LMNP status, registration takes place through the business formalities center (the registry of the Commercial Court on which the property rented as furnished non-professional depends). In Alsace-Moselle (or in the overseas departments and regions), the formalities must be carried out with the corporate tax services. Your registration must take place within 15 days of the start of the LMNP rental. This is when you opt for the simplified or real tax system of the LMNP. On the other hand, the status of a non-professional furnished rental company (LMNP) does not require the creation of a company. The LMNP rental can only come in addition to a gainful employment.