Roche & Cie

Renting of a part of the principal residence

17 Feb 2016

What is a principal residence?

The principal residence is a housing in which the tenant resides mainly in the year, by opposition to what is called the secondary residence.

On the renting of a part of the principal residence

It is clearly possible to rent or sublease a part of the principal residence. However, as the case may be, the renting’s incomes can be subject to taxes.

-Unfurnished renting

The incomes generated by the renting or sublease of a part of his principal residence are subject to the taxation of land incomes.

-Furnished renting

In case of renting or sublease of a part of his principal residence, the rents can be tax exempted, provided that:

– The rent is fixed within a reasonable limit given by the administration and indexed each year according to the rents benchmark index. Indeed, the rents must not be higher than a certain ceiling (reasonable rents), fixed for 2015 to:

·  184 per m2 by year excluding the charges for the housing located in “Ile-de-France”;

·  135 per m2 by year for the other places.

If your rent is higher than the ceiling, it’s 100% of this which will have to be declared and taxed.

– The rented rooms have to make part of the lessor principal residence.

When the located room had never been occupied before, had ben subject to important works and is an integral part of the principal residence of the lessor, the exemption is applied. However, the furnished room’s renting separate of the lessor’s housing and having a private access. That’s works also for the rooms renting never occupied and created after the transformation of a commercial locale or in the basement, don’t benefit from the exemption.

The exemption is not applied to the room’s renting which have a private access. For example: upstair’s room of a house having a outside staircase will not be eligible to the measures.

– And constitute the principal residence of the tenant or the subtenant

For the guestroom

In some cases, the guestroom’s renting can gives the right to tax exemptions. For this, you have to fulfill 3 conditions.

·  the renting has to be furnished;

·  the rooms have to be rented in a usual way as guestrooms. It is not mandatory to rent exclusively to tourists. You can rent by month, week or day. But, be careful, the room can’t be the home of the tenant;

·  The amount of incomes received during the year for the renting’s activity of the guestroom has to be lower than 760 € by year (including VAT). Indeed, the ceiling of 760 includes taxes and is applied to the whole of incomes arising from the renting and related services like the breakfast.

The practical tax regime in the absence of exemption

When the incomes are taxable, the tax regime is determined with the classic criteria. The rents has to be declared as “Industrial and commercial profits”.

There are some particularities concerning the classified rural holyday cottages “Gîtes de France”, furnished tourist accommodation and guestroom, especially the diffecences concerning the ceiling to pass from the flat-rate regime to the actual regime.

Real estate capital gain taxes on the sale of the principal residence

Usually, the capital gain tax of the principal residence’s sale is totally exempted. So, it is necessary to keep this characteristic.

In principle, if there is also a professional activity within the principal residence, the exemption can’t benefit to the part of the residence which is used to the professional activity.

Indeed, when the house or the part of the house sold is used as a house but also for a professional activity, only the fraction of the capital gain tax related to the sale of the private part which constitutes the principal residence of the seller can benefit from the exemption.

So, a person who would all the year a part of his asset to a furnished renting activity, like a guestroom, can’t normally benefit from the capital gain tax exemption, in proportion of the  asset’s use for this activity.

But, no jurisprudence had been published on this matter, which is the sign of a certain form of tolerance of tax services. If a person rents a single room of his house, it would not have to present some difficulties but it is different for a person who would rent a big part of his asset.

A person who wants to sell his house is well advised to stop his activity of furnished renting at least one year before the sell.

Curiously, there is no rule ordering a minimum duration in the principal residence characteristic.

In the case of a regular renting activity but limited to a part of the year, the summer for example, it is likely possible to assert that the house is completely eligible to the exemption of the capital gain tax. But this point had never been judged.

For more information on this subject, please contact us : Cabinet Roche & Cie, Chartered Accountant in Lyon, France.