Protecting savings, making them grow or drawing additional income from them is a concern shared by many households. To cope with life’s accidents, to prepare for retirement, and to be able to support their loved ones and children in all circumstances, families look for investments with characteristics of security and regularity.
However, the world is more and more regularly agitated by the shocks of international ﬁnances, crisis after crisis, causing fear and uncertainty among savers.
For many French people, real estate has always been considered, and rightly so, a safe haven. In fact, real estate has a quality that is widely recognized: the security of capital.
Furnished rentals remain an exceptional opportunity to earn additional income thanks to a more advantageous tax system than unfurnished rentals.
From an accounting point of view, there are two main categories of furnished tenants: the non-professional furnished tenants (LMNP) and qualified as professional furnished tenants (LMP). The difference between the two statuses lies in the gross annual receipts and in whether or not they are registered in the trade and companies register.
The issue of capital gains arises in case of sale of the property. In fact, the owner will be faced with taxation on the capital gains realized. However, depending on whether or not the owner has a special status, he will not be subject to the same tax regime.
In the following paragraphs, you will see how capital gains tax is calculated for individuals in LMP.
Advantages of a professional furnished rental (LMP)
The status of a professional furnished leaser has a very attractive ﬁscal environment.
As with non-professional rental, its main attraction lies in the possibility of generating rental income that is permanently untaxed, thanks to the depreciation of buildings and furniture under the BIC system.
However, the LMP also benefits from a deﬁscalizing effect, i.e., the elimination of some of the tax due on its other income.
Indeed, operating deﬁcits are likely to be charged against overall income. This is mainly the case in the year in which the business starts up.
In addition, under certain conditions, this status offers many other advantages in terms of capital gains tax, inheritance tax and wealth tax.
conditions for the lmp status
In order for the activity to be qualified as professional and for the investor to have the status of a professional furnished landlord, three conditions must be met simultaneously:
1° A declaration condition: to be registered in the Trade and Companies Register as a furnished lessor;
2° A condition of income: having an annual income of more than 23 000 €;
3° A condition of income: withdraw at least 50% of its income from this activity.
LMP tax calculation on capital gain
Unlike the non-professional exercise, the professional furnished recruitment does not benefit from the taxation of real capital gains under the mode of the individuals.
It is the regime of professional capital gains that applies.
The amount of the taxable real capital gains for professional furnished tenants is determined by the difference between: the sale price of the property and its book value.
The sale price (prix de cession): this is the actual price as stipulated in the deed, 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, provided that the amount is justified (e.g., diagnostic costs, costs of releasing the mortgage registration on the property).
The acquisition price: i.e., the acquisition value of the property after deduction of all depreciations realized since its commissioning.
It is necessary to distinguish two types of capital gain on real estate:
- The long-term capital gain, taxed at 12.8%: this is the real capital gain, the one that notes the increase in value of the property since its acquisition by the seller.
It is calculated by the difference between the sale price and the acquisition price.
This capital gain is exempt after 15 years of operation in furnished rentals in application of article 151 Septies B of the CGI.
However, it should be noted that the exemption only applies for income tax purposes. The operator will still be obliged to pay for social security contributions at the rate of 17.2% on this exceptional income that constitutes the realization of the long-term capital gain.
- The short-term real estate capital gain is subject to income tax according to the taxpayer’s marginal tax bracket and to social security contributions for the self-employed.
This short-term real estate capital gain consists of the depreciation realized during the exploitation of the furnished property. The latter are deductible during the operation as furnished property. However, it is only a deferred tax, since the tax saved during the exploitation will have to be paid at the time of the sale of the property.
However, article 151 septies of the CGI allows to benefit from a total or partial exemption from income tax on short and long term capital gain once the professional furnished rental activity is carried out for more than 5 years.
To benefit from this exemption, professional furnished tenants must realize receipts:
– Less than 90 000 €, for a full exemption,
– Less than 126 000 € for a partial exemption.
Even after applying the exemption regime of article 151 septies, the social contributions of the self-employed persons (Ex-RSI) must be paid.
LMP and LMP summarized
|Registration in the RCS||Condition of receipts||Conditions of income||Category|
|< 23 000 €||LMNP|
|Yes||> 23 000 €||Furnished rental income < other LMNP income||LMNP|
|Furnished rental income > other LMP income||LMP|
LMNP/LMP capital gain summarized
|Advantages||Attractive ﬁscal environment: possibility of building up rental income that is permanently untaxed, thanks to the depreciation and furniture applicable in the BIC regime.|
|Conditions for obtaining the status||1° A declaration condition: You have created a SIRET number and submit your annual tax return at the tax office; 2° A condition of receipts: The annual receipts from this activity do not exceed 23 000 €; 3° A condition of income: This income is not more than 50% of your principal income.||1° A declaration condition: to be registered in the Trade and Companies Register as a furnished rental company; 2° A condition of receipts: to realize more than 23 000 € of annual receipts; 3° A condition of income: to withdraw from this activity at least 50% of their income.|
|Imputation of tax losses||Imputation of tax only on profits from the non-professional furnished rental activity for 10 years.||Deficits resulting from rental activities can be deducted from total income.|
|Capital gains regime||Capital gains are taxed as part of the capital gains regime for individuals. There are cases of exemption, in particular: – the sale of the owner’s principal residence; – the sale of a property whose price is less than or equal to 15,000 euros. – no tax on the capital gains if the taxpayer has owned the property for 15 years (due to the 10% deduction per year after the 5th year of ownership).||Capital gains regime of professional capital gains. When the activity lasts for more than 5 years, the capital gain is exempt if the revenue does not exceed 90,000 euros. A partial exemption applies when the revenues do not exceed 126,000 euros.|
Capital gains :