France: rental income tax
If you are you are looking to invest in a seasonal letting in France or you are currently renting out your second home in France you will want to know about how much tax you are liable to pay on any income you generate, irrespective of where you are resident.
Non-residents pay tax at the basic rate of 20% on the net income generated in France. Taxpayers can make an application for a rate of taxation lower than 20%, but will need to declare all their worldwide income to the French tax authorities.
If you are resident in France, your rental income will be added to the rest of your earnings and taxed on a progressive scale, up to a maximum of 40%
There are two categories of rental income tax in France:
Revenues fonçiers – which is applied to income from land and unfurnished lettings
Bénéfices industriels et commerciaux (BIC) – applicable to income from furnished lettings (treated as commercial income).
BIC will be applied to income from your holiday rental apartment as it is categorised as a furnished letting.
If you are resident in France, you are also liable to pay social charges or prévèments sociaux. This is taxed on net rental income at a rate of approximately 12.1 per cent.
Régime réel simplifie (RR)
If your rental income is over €33,300 per tax year, you will be taxed according to the régime réel simplifie (RR).
Under the RRS you deduct expenses related to the letting of the property. This includes insurance, mortgage interest, depreciation, repairs, maintenance costs and any management fees. You cannot deduct costs for any works that increase the size of a property. In the case of maintenance works, the labour costs for any DIY work cannot be deducted, although you can include the cost of the materials.
If you earn under the threshold, you can still opt into the RR. For example, if you make a loss or your expenses exceed 50 per cent of the gross rental income. This would then make the RR better value than the Micro-BIC
You can carry losses forward for the year they arise and for the following six years.
If you do choose the RR the decision is irrevocable for three years. If you do not revoke it after this period it will automatically be renewed for another three years.
What about UK income tax?
If you are resident in the UK, then you will be liable to pay UK income tax on any income generated in France; even if the money is never brought back into the UK.
However, a double taxation treaty is in place between the UK and France, which deducts any French tax paid against the UK tax liability.
If the tax paid in France is higher than that which is owed in the UK, no tax will have to be paid in the UK. However, no refund will be made for the difference.
If the UK tax liability on the income exceeds the French tax, the difference between the two amounts will have to be paid in the UK.
The UK and France will calculate the taxable income according to their own rules. It should be noted that the tax year in the UK differs from that in France: the UK tax year runs from April 6, whereas it is a calendar year in France.
Find out more about rental tax in the UK.
Please be aware that the information set out above is for advice purposes only. If you have questions about French tax laws, we suggest that you contact our recommended tax lawyers Sykes Anderson Perry.
Source: Holiday Lettings