Letting a property in France is an excellent way to increase your income while protecting your capital. However remember that you must take into account the running costs as well as the rental taxes that apply. In this guide we look at the different costs and taxes that apply, however it's advised you always seek professional advice to avoid any unpleasant surprises.
In this guide we will look at:
- Taxes paid by the landlord
- Renting / letting an unfurnished property
- Renting / letting a furnished property
- Using a letting agency
TAXES PAID BY THE LANDLORD
The landlord must pay the "taxe foncière". He equally must pay the waste tax or the "taxe des ordures ménagères" which can be re-claimed from the tenant as a recoverable charge. It is the tenants' responsibility to pay the "taxe d'habitation" as of the 1st of January.
Rental income is subject to income tax and the landlord must declare it depending on the type of rental (furnished or empty).
RENTING / LETTING AN UNFURNISHED PROPERTY
Rental income on an unfurnished property comes under the category of taxable property income or "revenus fonciers imposables", either under the micro-foncier system (flat rate) or under the "Régime réel" system.
To benefit from the flat rate (or micro-foncier) system, the landlord must not receive more than 15 000 euros in rental income, annually. With this regime the tax authorities automatically deduct 30% off the rental income declared, to cover the landlords costs. The landlord cannot therefore deduct any additional expenses from the property income. This scheme is incompatible with particular devices set up by the state.
The "régime réel" is mandatory for those receiving more than 15,000 euros per year in rental income. This system allows the owner to declare the expenses incurred during the year including repairs and maintenance expenses, improvements to the property, condominium fees, administration and management expenses, insurances, taxe foncière, loan interest, fixed deductions provided by certain rental investment schemes etc.
For those earning less than 15 000 Euro but who have incurred a lot of expenses, it is possible to choose the "régime réel". But beware, this option commits you for three consecutive years. So choose carefully.
RENTING / LETTING A FURNISHED PROPERTY
Revenues from furnished rentals fall under the category of "bénéfices industriels et commerciaux" (BIC). Just like unfurnished rental income, there are two tax regimes for BICs Landlords who receive no more than 32 900 euros per year in rental income from their furnished rental can choose the "régime forfaitaire" (or micro-BIC). In this case, the taxable profit is calculated after a 50% deduction with a minimum amount of 305 euros to cover expenses incurred.
The latter becomes mandatory for owners who receive more than 32 900 euros per year from their furnished rental. It allows the owner to report actual expenses incurred during the year, such as maintenance, repair and improvement costs, depreciation of premises, management and insurance fees, interest on borrowing and local taxes.
USING A LETTING AGENCY
In the same way as selling a house, letting agents are there to help homeowners in their efforts. Estate Agents or "agences immobilières" that offer a rental management service can advise owners on the rental amount and help to optimise the rental so that it is profitable and always well maintained.
After visiting the property, the agency will advise on how much the property can be rented out for, taking into account the local market, supply and demand. It is therefore important to use a local Estate Agent. They can also advise if the property requires any work. Sometimes this allows for higher rent and the cost of the work can be declared as a tax deductible expense.
Landlords will also benefit from advice from a real estate professional on the taxation system and the benefits of each plan.
Landlords can be covered in the event of unpaid rent and the estate agent will advise them and discuss the option of insurance to cover such an event.
Well maintained housing meeting norms
If you use an Estate Agent to let your house, they will manage the property completely. Thus, the property will be regularly maintained and in the event of an incident, the tenant can contact the agency in order to benefit from their ability to fix the problem quickly.
At what expense?
Rental management costs somewhere between 5 to 10% of the rent depending on the amount of rent and services purchased like insurance to cover unpaid rent or 'assurance de garantie des loyers impayés.
Article brought to you by Jean Samuel Cordeau from Argus Immobilier. For more information please visit http://www.argusimmobilier.fr/