When investing in rental property, questions about the profitability of the property or the associated taxation arise regularly.
Mana-Homes helps you answer these legitimate questions by providing you with a guide to possible tax solutions based on your personal situation, with a particular focus on the status of Professional Furnished Landlord (LMP).
The LMP (Professional Furnished Rental) scheme:
This scheme allows you to significantly reduce your tax liability on income generated from renting out your recently acquired property as a Professional Furnished Landlord.
1. Conditions to be met:
- Generate annual income exceeding €23,000 from rental income (this refers to taxable income, not revenue) or a maximum of 50% of your total income.
- Furnishings: Your accommodation must be furnished and equipped with all the essential appliances for living, such as an oven, refrigerator, etc. A decree dated 31 July 2015 sets out the precise list of furniture and equipment to be provided to the tenant.
As a Professional Furnished Landlord, you must ensure that your accommodation includes bedding, window coverings, hotplates, an oven or microwave, a refrigerator with freezer compartment, crockery, kitchen utensils, a table and chairs, storage shelves, lighting and cleaning equipment.
2. Formalities to be completed
- Declare the start of your business online on the Infogreffe website: with the P0i form if the activity is in your own name, within 15 days of the start of the rental activity (may differ from the date of acquisition)
- Draw up a complete inventory of the equipment in the property and attach it to the tenant's entry inventory. This constitutes proof that the accommodation complies with LMNP (Leaseback) / Professional Furnished Rental regulations.
- Prepare/have prepared an annual statement of income and expenditure related to your property as a Professional Furnished Landlord Income: Rent received + any cleaning fees charged
Expenses: Co-ownership charges + Loan interest + Maintenance work invoices + Any cleaning and laundry invoices + Electricity + Internet if available + Property depreciation **We will return to the calculation of this charge in detail later. - Registration with an approved management centre is still possible today and will save you from having your income increased by 10% for 2022. This provision, and therefore the 10% increase, will no longer apply from 2023 onwards.
For your information, this registration costs between €170 and €250 per year.
- The services of a chartered accountant are required. They will take care of preparing the annual income statement and tax return for your property.
For your information, the cost of a chartered accountant can vary between €700 and €1,200 for this type of service.
- Registration with a business registration centre is mandatory. This will result in an annual CFE (business property tax) based on the size of your property. The amount is often similar to your property tax.
3. The advantages of LMP (Professional Furnished Rental)
a. Tax deduction for depreciation
You can reduce your annual tax return by the amount of depreciation related to your property. Depreciation is an annual expense corresponding to its devaluation. potential depending on its wear and tear or usage. Important: By depreciation, we do not mean a decrease in value. You can still depreciate an asset whose market value increases annually.
Method of calculating depreciation
Your acquisition cost will include:
- The purchase price of the property (e.g. on Saint-Gervais or Megeve)
- Notary fees
- Any work that may be required
- Equipment and furnishings
All of these amounts will form the basis of your deduction. However, each category is not depreciated in the same way or over the same period.
The land on which your property is built is not depreciable. By definition, all acquired property is built on land. When you invest in an apartment in a condominium, the value of this land is calculated on the basis of 15% of the purchase price of the apartment. If you invest on a 100 basis, the price of the land is 15.
After deducting the land, the remaining £851,000 of your purchase price will be allocated as follows:
The structure of the 50% property, depreciable over 25 years
The façade and roofing 20% amortisable over 25 years
Electrical and heating installations 20% depreciable over 20 years
Other equipment (lift, shared property, etc.) 10% depreciable over 10 years
To make it easier to understand, let's take the following example
An old property Purchased for €100,000
+ notary fees €8,000
+ Renovation work €7,000
Total acquisition cost €115,000
The land 100,000 X15% = €15,000 is to be deducted from the calculation as it is not depreciable.
The total amount to be amortised is therefore £100,000, broken down as follows:
Structure = 50% X 100,000 = 50,000 spread over 25 years = 50,000/25 = £2,000
Facade Coverage = 20% X 100,000 = 20,000 over 25 years = 20,000/25 = £800
Electrical and heating installations = 20%X 100,000 = 20,000 over 20 years = 20,000/20 = £1,000
Other miscellaneous equipment = 10% X 100,000 = 10,000 over 10 years = 10,000/10 = £1,000
Your total annual depreciation therefore amounts to €4,800.
You can also amortise the cost of your equipment and furnishings over a period of 5 years (10 years for kitchens).
This amount will be added to your co-ownership charges, electricity bills, maintenance bills, etc., and will therefore be deducted from your rental income when you file your LMNP tax return. This depreciation allows you to reduce your taxable income by €4,800 per year thanks to the LMNP scheme.
b. Exemption from capital gains tax on sale:
Provided that the professional furnished rental business began at least five years ago, capital gains on disposals are fully exempt when rental income is less than €90,000. The exemption is partial in cases where income is between €90,000 and €126,000 excluding VAT.
The exemption is partial in cases where revenue is between €90,000 and €126,000 excluding VAT.
c. Exemption from Real Estate Wealth Tax (IFI), formerly Wealth Tax
Furnished properties rented under the LMP* scheme are considered business assets and appear on the assets side of your balance sheet, subject to depreciation (see tax deduction for depreciation).
As professional assets, these properties are therefore not included in the calculation of the IFI.
*NB: this does not apply to LMNP (non-professional furnished letting) activities.
