Reform of the micro-BIC scheme
The taxation of furnished short-term lettings is set to undergo major changes in 2024. The new Finance Act ratified at the end of last year caused much ink to flow when it approved an amendment to the micro regime, which the Government had “not wanted”.
More recently, the “anti-Airbnb” law adopted on first reading by the National Assembly on Monday 29 January 2024 has reinforced this position.
A better understanding of the situation
Prior to the ratification of the Finance Act for 2024, the tax regulations applicable to seasonal furnished rental operators allowed them to benefit from a “micro” regime :
- For unclassified furnished rentals: application of a flat-rate 50% allowance for expenses, provided that gross annual rental income does not exceed €77,700.
- For classified furnished seasonal rentals: application of an enhanced flat-rate allowance of 71%, provided that gross annual rental income does not exceed €188,700.
Of course, those wishing to do so could always opt voluntarily for the “régime réel d’imposition” (actual tax regime), under which they could deduct the actual operating costs of their business.
However, the ratification of the Finance Act has drastically altered the conditions for application of the micro regime. If we stick to the current wording of the tax texts, the new micro regime would look like this:
- For long-term furnished rentals (non-tourist): application of a flat-rate allowance for charges of 50%, subject to gross annual rents not exceeding €77,700.
This remains unchanged.
- For furnished tourist rentals: the micro regime applies only if gross annual rental income does not exceed €15,000.
The deduction for expenses has also been modified, lowered to 30% and 51% when the property is classified as “furnished tourist accommodation” and is not located in a tight zone for housing market (only rural areas without a high housing market).
NB: the new “Anti-Airbnb” law currently being studied would propose a slightly modified tax scheme:
- the tax allowance for classified tourist accommodation would be lowered to 30%, subject to an annual rental income ceiling of €30,000. In certain low-density rural areas and ski resorts, the increased allowance of 71% would nevertheless be maintained, provided that turnover did not exceed €50,000.
- the tax allowance for unclassified furnished tourist accommodation would be lowered to 30%, but with the turnover ceiling reduced to just €15,000.
Retroactive effect of the law
It should also be noted that, in accordance with article 1st of the French Finance Act, these changes will apply retroactively to income received from January 1st 2023. This would be a real disaster for many seasonal furnished-rental operators, as many of them would find themselves subject to the “real” tax regime if they exceeded the €15,000 sales threshold…
Update of 20/02/2024
The French tax authorities have issued an instruction dated February 14, 2024, specifying the conditions for applying the micro-regime to the previous year’s income. Owners of furnished rental properties who have exceeded the €15,000 turnover threshold for 2023 may, if they so wish, continue to benefit from the micro-regime in its version prior to the Finance Act for 2024. From January 1, 2023, they will not be obliged to declare their rental income under the actual regime (which implies the establishment of a commercial accounting system).
Furnished rentals and the Dutreil Pact
A recent decision by the French Conseil d’Etat (CE ruling no. 473972 of September 29, 2023) temporarily paved the way for the introduction of Dutreil transmission schemes for businesses engaged in furnished rental activities. Until then, this type of business had been considered ineligible for this scheme, which allows a 75% allowance on the basis for calculating gift and inheritance tax.
The opening was short-lived, as the Finance Act for 2024 contradicted the Conseil d’Etat’s position by reaffirming that the management of real estate assets did not constitute a business activity eligible for the Dutreil scheme.
Other changes may be expected following the study of the new “Anti-Airbnb” law: reintegration of depreciation in the calculation of capital gains, mandatory diagnostics, implementation of local regulations, etc.
We will keep you informed in the coming weeks of the next regulatory developments in furnished holiday lettings.
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