Non-professional furnished property (location meublée non professionnelle, or LMNP) is a popular choice among lessors. However, one of the most significant advantages is often overlooked, namely the possibility of opting for the régime réel, tax scheme whereby entrepreneurs and companies are taxed on the basis of income earned each year.
To help you truly understand LMNP status within this tax scheme, we’ve called on an expert in the area – Sophie Dufresne from the law firm Fleuret Associés – who helps around 1,500 clients per year with this type of rental.
In which situations should lessors opt for LMNP status ? What are the conditions ?
LMNP status within the régime réel is intended for all individuals who either own or wish to invest in a property, whether old or new, that they intend to rent out furnished.
There are two types of furnished rentals: traditional furnished rentals (e.g. furnished apartments, chambres de bonne, etc., subject to conditions in high-demand areas if they are secondary, seasonal or temporary rentals) and rentals of serviced apartments or housing (e.g. retirement homes, tourist residences, student housing, senior living facilities), which are less common.
It’s possible to benefit from LMNP status within the régime réel either as a direct owner or through a family limited liability company (SARL de famille). This type of company is generally favoured by individuals who wish to pass on their assets (as is also the case with French real estate companies, or SCIs).
Note : Opting for LMNP status when you have acquired a property through an SCI is of little benefit, as the company will then be subject to corporate tax. Similarly, those who only have usufructuary rights concerning a property that has been divided among heirs will not benefit from LMNP status within the régime réel.
Advantages of LMNP status within the régime réel
It’s important to clearly distinguish between furnished and unfurnished rentals, as each falls within a different tax scheme. Essentially, the régime foncier is applied to unfurnished rentals, whereas for furnished rentals, the relevant scheme is the industrial and commercial profits (bénéfices industriels et commerciaux, or BIC) scheme.
Herein lies the tax benefit of distinguishing furnished from unfurnished. Through LMNP status within the régime réel, around 85% of the value of the property can be deducted across its period of use, which isn’t possible for unfurnished rentals. This deduction creates a tax advantage that allows owners to pay less in taxes.
The other benefit of this scheme is that there’s no particular threshold, unlike the PINEL or Scellier systems for instance, which cap the rent paid by the tenant and their resources.
Finally, in the event of the property’s resale, the tax advantage acquired throughout the duration of the rental period is, in principle, definitive. This means that the capital gain will be calculated according to the selling price minus the actual purchase price, without having to pay pack any amounts written off.
Disadvantages of the LMNP
Furnished rentals have a minimum lease period of one year, or nine months if the tenant is a student, unlike unfurnished rentals which have a lease period of three years. This of course results in more property management and administration.
Furnished rentals are also less practical for large surface areas. It’s therefore often easier to rent out a small furnished property, such as a studio apartment.
Conditions of eligibility for LMNP status
In terms of the furniture and other items, a list was set out in the Decree 2015-981 of 31 July 2015 which must be respected in order to meet the conditions of a furnished rental.
Steps to be taken for those wishing to benefit from LMNP status
There are two possible scenarios :By default, you fall under the micro BIC tax scheme if your annual income is less than €70,000. In this case, you will need to declare the rental amounts on your tax return in order to benefit from a flat-rate allowance of 50%. The rent payments you receive will be taxed at 50% and you will be taxed on this basis.If you wish to accelerate the depreciation of your property, you will need to opt for the régime réel simplifié BIC (BIC simplified actual taxation scheme). This tax scheme is strongly recommended for LMNP. However, some formalities must be completed in order to benefit from it :
– You must register with the relevant department in order to declare the commencement of activity within 15 days of the date of signature of the notarial deed, by filling out the necessary form.
– We recommend that you join a chartered management centre (centre de gestion agréé, or CGA) within five months of the beginning of the rental period
– A special tax return must be filed with the tax authorities once a year.Remember : By default, you will be exempt from VAT. For the rental of a purchased property with services (e.g. a retirement home or tourist residence), especially if it is new, you will need to forego this exemption within 15 days of the beginning of the rental period by opting for the régime réel, in order to recover VAT on your purchase.
How does Fleuret Associés assist clients with their investments in LMNPs ?
We have two types of clients: those who invest in traditional residences and those who invest in serviced apartments or housing.
First, the client sends us the documents concerning the property that they wish to rent out, and we take care of their registration with the relevant departments, meaning the business formality centres (centres de formalités des entreprises) and the tax authorities.
We take care of everything, so the client is very rarely required to carry out any administrative tasks. We undertake a review once a year and help the client with the declaration, so that they can report their amount of rental income on their income tax return.
We also inform our clients of any legislative changes concerning furnished rentals that might have an impact on their property.
Fleuret Associés also assists professionals with the rental of furnished business premises. What are the conditions for this category of rental?
We regularly assist lessors in these rentals, which usually require a commercial lease. To be eligible, the furnishings must be specific to the professional activity. For instance, for a restaurant, the space must provide a fully-equipped kitchen, tables and so on. This type of rental has very strict rules. That’s why it’s not always easy to qualify for furnished business premises in the services sector. Our role is to help our clients determine whether or not their property meets the criteria for furnished business premises.
The rental of furnished business premises has the same advantages as furnished housing rentals, namely that the rent is reduced thanks to tax breaks on the property being rented. However, this scheme affects social security contributions (cotisations sociales), from which the furnished rental scheme is generally exempt.