HOW DOES FRANCE TAX REAL ESTATE INCOME ?

Study carried out for: RON and ANNE KELLY
By DTB Wealth Management associate partner of VIA Upon request of FRENCH ENTRÉE

Hypothesis 1: The couple is domiciled in France. (for information purposes only)

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Regime Micro Foncier

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Regime « réel »

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CONCLUSION

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Sub-hypothesis 1: This is an unfurnished building: Taxed as Real Estate Income

Taxation: in France only

Real estate revenues of less €15,000 per year, i. e. – €1,250 per month 30% discount, which is automatic. Income tax would be :
10 500€

Real estate revenues exceeding €15,000 or the taxpayer has opted for it. No automatic allowance, charges can be taken into account and deducted.

MICRO LESS ADVANTAGEOUS

Sub-hypothesis 2: This is a furnished building: Taxed as Industrial and Commercial Benefits (BIC)

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Taxation: in France only

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Real estate revenues of less than €70,000, i. e. – 5,833 per month 50% discount, which is automatic.

Real estate revenues exceeding €70,000 or the taxpayer has opted for this regime. No automatic allowance, all charges can be taken into account and deducted.

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MICRO MORE ADVANTAGEOUS (50% DISCOUNT)

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+ 17,2% SOCIAL CHARGES (unless S1)

DTB Wealth Management – Wednesday the 11th of September 2019

Hypothesis 2: The couple is domiciled outside France.

Regime Micro Foncier

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Regime « réel »

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CONCLUSION

Sub-hypothesis 1: This is an unfurnished building: Taxed as Real Estate Income

Taxation: in France only with an imputable tax credit. “Article 6 of the French-English (DTA) Double Taxation agreement”

Real estate revenues exceeding below €15,000, i. e. – €1,250 per month 30% discount, which is automatic. That is a tax of 10 500€

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Real estate revenues exceeding€15,000 or the taxpayer has opted for it. No allowance will be made alone, the charges will have to be taken into account.

REGIME MICRO LESS ADVANTAGEOUS

Sub-hypothesis 2: This is a furnished building: Taxed as Industrial and Commercial Benefits

Taxation: in France only with an imputable tax credit. “Article 6 of the French-English tax treaty”

Real estate revenues exceeding below €70,000, i. e. – 5,833 per month 50% discount, which is automatic.

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Real estate revenues exceeding€70,000 or the taxpayer has opted for this regime. No automatic allowance, the charges can be taken into account and deducted.

MICRO REGIME IS MORE ADVANTAGEOUS (50% DISCOUNT)

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20% TAX ON THE TOTAL AMOUNT OF INCOME

+ 7,5% NEW 2019 SOLIDARITY TAX (S1 non applicable)

DTB Wealth Management – Wednesday the 11th of September 2019

3 – CONCLUSION :

The most advantageous solution (for us), would be to rent accommodation “furnished” , be in BIC regime mode, in order to be able to benefit from the 50% discount as presumably the annual rental income would be below 70 000 €’s.
After what, if after the 50% allowance, the income is below €27,519 per year, an exceptional 20% marginal rate, is applied. (if above 30% marginal rate)

In view of the UK / FR – DTA, and the location of the building (i.e. France), only France will tax. However, as mentioned in the DTA which’s purpose is to avoid double taxation of rental income, if the UK insists one declares their foreign rental income to HMRC, in that case,
by law one can deduct from the tax due in the United Kingdom, in respect of the same type of income, a tax credit equal to the French tax paid on that same rental income.

Example : If one pay’s 1000€ tax in France on rental income, they will be to deduct that 1000 € if the HMRC taxes them on that foreign rental income, avoiding double taxation (as per Fr vs UK, DTA)

NB: We also assume that in this case, the landlord is not renting furnished property as a “Porfessional” (regime : LMP). If this was the case it would be possible to deduct the depreciation of the property over 30 years. (The conditions to become LMP, are difficult to obtain is one is nonresident) considerably reducing one’s real estate income.

Final Example :
• Ifonerentsthispropertyfurnishedfor1000€permonthor12000€peryear.

taxable base would be 6,000€ at 20% marginal rate = 1,200€ of taxation.
• If rented bare for 1 000€ per month or 12 000€ per year, the taxable base.

Would be 8,400€ at 20% = €1,680 of taxation.

IN this example by renting the property furnished, the landlord would gain 480€ if furnished.

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