Furnished rental is a very trendy activity that is regularly highlighted by the press. For both lessee as lessor, it is a good deal.
This type of accommodation has all the assets to seduce customers: low price, comfort, accessibility, flexibility of the length of stay.
For the owners of furnished accommodation, the same applies: a flexible legal framework, minimal constraints, a profitability that is much higher than that of all other forms of rental and a beneficial tax regime.
In your life as an investor, the question of capital gain will arise when you sell your rental investment.
The novice investor will tell you that all you have to do is compare the sale price with the purchase price and apply the tax rate.
In reality, the calculation by the notary is much more complex than that.
The following article is intended to:
- give you some keys to calculate the capital gain tax for LMNP
- discuss which transfer and acquisition costs are taken into account
- Determine the tax amount is and how to pay it
The advantages of LMNP for the lessor
The status of non-professional furnished renter has an attractive ﬁscal setting.
As with professional rental, it’s main attraction lies in the possibility of generating rental income that is not taxed in the long term, thanks to the depreciation of buildings and furniture under the BIC regime.
Conditions need to be met to benefit from the LMNP status
It should be noted that the activity of furnished rental property covers two fiscal realities: professional furnished rental (LMP) and non-professional furnished rental (LMNP).
The method of taxation of the real estate capital gain differs according to whether the furnished rental activity is carried out on a “professional” or “non-professional” basis.
The distinction between “professional” and “non-professional” furnished rental activity is presented in article 155 of the Code Général des Impôts.
Therefore, the activity of renting out furnished is carried out on a non-professional basis when the following three conditions are met:
1° A declaration condition: You have created a SIRET number and submit your annual tax return at the tax office;
2° A condition of receipt: The annual receipts from this activity do not exceed 23 000 €;
3° A condition of income: This income is not your principal income.
Calculation of capital gain tax
The capital gains realized by non-professional furnished tenants when selling furnished residential premises are subject to a capital gains tax regime for individuals.
It is the notary who is responsible for drawing up the declaration and paying the tax on behalf of the seller at the time of land registration.
He therefore pays, during the same formality :
- The registration fees owed by the buyer and
- The tax on the real estate capital gain owed by the seller.
The gross capital gain is equal to the difference between the selling price and the acquisition price.
The sale price is the actual price as stated in the act, increased by certain charges and indemnities, and reduced by the amount of value-added tax paid and expenses incurred by the seller in connection with the sale, with the condition that their amount is justified (e.g., diagnostic costs, costs of releasing the mortgage registration that may have encumbered the property).
The purchase price is the price paid by the seller, as stated in the act. It is increased by a certain number of costs and various expenses listed by law. In particular :
- Acquisition costs in return for payment (e.g. a sale), which are retained either for their actual amount at the time of justiﬁcation, or as a lump sum for an amount of 7.5% of the acquisition price;
- The costs of acquisition free of charge (e.g. in the case of a property acquired by inheritance), if these costs and transfer duties were borne by the seller;
- Construction work: either under certain conditions for the actual amount (only if the work was carried out by a company and invoiced), or at a flat-rate basis for an amount corresponding to 15% of the purchase price without justiﬁcation, on the condition that the taxpayer sells the property more than five years after its acquisition.
Now that we know how the amount of the taxable capital gain is calculated, we will look at the tax rate.
The tax on the capital gain of the individuals is composed of two taxes:
- Income tax at the flat rate of 19%;
- Social security contributions at the rate of 17.2%.
The deductions applicable to the amount of the taxable capital gain are included in the income tax and social security contributions.
To obtain the taxable capital gain, the gross capital gain is reduced by a deduction in stages:
|6%||For each year of ownership beyond the fifth and up to the twenty-first year.|
|4%||at the end of the twenty-second year of ownership (to reach 100%).|
Social security contributions
In order to determine the taxable amount of the social security contributions on real estate capital gains, the deduction for the duration of ownership is:
|1.65%||for each year of ownership beyond the fifth and up to the twenty-first.|
|1.60%||For the twenty-second year of ownership.|
|9%||for each year beyond the twenty-second year up to the 30th year.|
The real estate capital gains are thus fully exempt:
- After 22 years of ownership for income tax purposes;
- After 30 years of ownership for social security contributions.
Deductions according to years of ownership for IR and social security contributions
|Years of ownership||IR||Social security contributions|
|Less than 6 years||0%||0%|
|Between 6 and 21 years||6% per year||1,65% per year|
|Beyond 22 years||4% per year||1,60% per year|
|Between 23 and 30 years||Exempt||9% per year|
|Beyond 30 years||Exempt||Exempt|
Sources : impôts.gouv
Surtax in case of important capital gain
If your taxable capital gain I smore than 50 000€, you will have to pay an additional tax. You can find the details of the calculation in the following table:
|Amount of the capital gain (PV)||Amount of the surtax (*PV = capital gain)|
|Between 50 001 € and 60 000 €||2% x PV – (60 000 – PV*) x 1/20|
|Between 60 001 € and 100 000 €||2% x PV|
|Between 100 001 € and 110 000 €||3% x PV – (110 000 – PV) x 1/10|
|Between 110 001 € and 150 000 €||3% x PV|
|Between 150 001 € and 160 000 €||4% x PV – (160 000 – PV) x 15/100|
|Between 160 001 € and 200 000 €||4% x PV|
|Between 200 001 € and 210 000 €||5% x PV – (210 000 – PV) x 20/100|
|Between 210 001 € and 250 000 €||5% x PV|
|Between 250 001 € and 260 000 €||6% x PV – (260 000 – PV) x 25/100|
|More than 260 000 €||6% x PV|
Cases of exemption
There are cases of exemption from capital gains tax, in particular:
- The sale (cession in French) of one’s principal residence;
- The sale of a property with a value of less than or equal to 15 000 € in full ownership;
- The first sale of a property other than the seller’s principal residence, provided that:
- the transferor has not owned his or her principal residence directly or through an intermediary, during the four years preceding the transfer
- the sale price is totally or partially reinvested in the acquisition or construction of a home that the seller uses as his or her principal residence within a period of twenty-four months.
- The sale of the residence in France of non-residents.
At the notary’s office: how is the tax paid?
Notaries make a calculation based on the information you provide. So don’t forget to give them all the acquisition costs and transfer costs.
A few days before signing the deed, check the amount calculated by the notary and do not hesitate to ask him for the details of his calculation and compare it with yours.
On the day of the signing of the deed, the notary will deduct the amount of the capital gains tax directly from the amount of the sale.
You do not need to make a transfer to the Tax Agency as the notary will take care of that.
Differences capital gains of LMP and LMNP
The table below summarizes the essential differences between the capital gains regime in LMP and LMNP.
|Are taxed as part of professional capital gains.||Are subjected to the regime of capital gains of individuals.|
|When the activity is exercised for more than 5 years, the capital gain is exempted if the realized revenues do not exceed 90 000€.||There are cases of exemption such as: The sale of the seller’s main residence; The sale of a property whose price is less than or equal to 15 000€.|
|A partial exemption applies when the revenue does not exceed 126 000€.||No capital gains tax if the taxpayer has owned the property for 15 years (due to the 10% per year deduction after the 5th year of ownership)|
In short, in the event of the sale of a property intended for furnished rental, the seller will be faced with a tax on the capital gains realized. However, depending on his status, private or not, the owner selling the property will not be subject to the same tax regime. The LMNP tax regime differs in two respects in particular.
- Deficits are attributable only to gains of the same nature realized during the same year and the 10 following years.
- Capital gains are subject to the capital gains regime for individuals (deduction for the duration of ownership, and 19% for income tax increased with social security contributions).
However, there are exemptions depending on the book value of the property or the length of time the owner has owned the property.
Finally, it is advisable to specify all the acquisition and transfer costs to the notary in order to avoid paying an excessive capital gain. The notary will make the transfer to the tax office at the time of signing the deed.