France: rental income tax

There are two categories of rental income tax in France: revenues fonciers, which is applied to income from land and unfurnished lettings, and bénéfices industriels et commerciaux (BIC), applicable to income from furnished lettings (treated as commercial income).

In the case of holiday lettings, the BIC is most likely to apply to your income.

If you are resident in France, you are also liable to pay a social welfare levy - the prévèment sociaux. This is taxed at a rate of approximately 12.1 per cent on net rental income.

Micro-BIC

• When income from furnished lettings is under €32,000 per tax year, taxable income may be calculated under the Micro-BIC (new rates effective January 2009).

• The Micro-BIC is a simplified system that taxes 50 per cent of the gross rental income. The remaining 50 per cent is deducted as presumed expenses. No expenses need actually be shown and no accounts are required. Neither do you need to fill in separate tax forms for the business.

• The disadvantage of the Micro-BIC is that it always shows a fixed taxable profit - you cannot show a loss or a lower net profit.

Régime Réel Simplifie

• If your rental income is over €32,000 per tax year, you will be taxed according to the régime réel simplifie (RRS).

• 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. Wo

• If you earn under the threshold, you can still opt into the RRS. For example, if you make a loss or your expenses exceed 50 per cent of the gross rental income. This would then make the RRS 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 RRS 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.

Tax on income from a company owned property

• If the property in question is held in an SCI ( Societé Civile Immobilière) - a private French property holding company - or in a non French company, then the Micro regimes cannot be applied to rental income.

• If an SCI lets a furnished property, the income generated is subject to corporation tax, not income tax. Likewise with any capital gain when selling the property.

• If the property is owned via a company in a country considered a tax haven by France, additional penalty taxes will also need to be paid.

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.