Letting The French Property: The Income Tax Implications: French Tax Services Charles Hamer
Any letting income generated by the French property owned by a resident in France or the UK, no matter where it is paid or received, is always, first and foremost, taxable in France.
The French tax authorities have been targeting owners of holiday homes in France who do not declare the income received from the rent and have been imposing fines and penalties.
For those property owners this can lead to retrospective "Taxation d'Office" and recovery procedures whereby a tax assessment is issued automatically based on what the local tax office deems as being the typical profit that could be expected to be obtained from seasonal holiday lettings, (ignoring normal allowable expenditure such as mortgage interest), adding late interest charges and penalties, irrespective of the true income and expenses incurred.
If the owner is resident and domiciled in the UK, the income will also always be taxable in the UK. However, through the Double Tax Treaty any tax paid in France may be offset against tax due in the UK applying to the same rental income. If the tax paid in France is more than that due in the UK, then no tax will be paid in the UK.
EXCHANGE OF INFORMATION BETWEEN UK & FRENCH TAX OFFICES
There is a new updated Double Tax Treaty which is intended to come into force shortly, which introduces the systematic exchange of information between the UK and French tax authorities.
The likely impact of this exchange of information will affect individuals who have not ensured their tax affairs have been properly administered in both the UK and France. This will notably be the following:
- Undisclosed UK nationals resident in France being challenged to submit French annual tax declarations
- UK resident French property owners with rental income being required to submit French annual tax declarations for the rent received
- UK resident French property owners with rental income being required to submit UK annual tax declarations for the rent received
- UK resident French property owners to submit UK Capital Gains Tax declarations on the sale of French property
Whilst all of the above are already mandatory, it is going to be far easier for both the UK and French tax offices to obtain information on these individuals.
FRENCH INCOME TAX DECLARATIONS
The French tax year runs from 1st January to 31st December, and for non-French residents the tax return needs to be completed and submitted to the local French tax office by the by the beginning of the following May and to the non-resident tax office by June (current rules).
Usually, the income can be assessed under one of the following 2 methods:
Regime des Micro-Entreprises
Whenever total income for the year is less than 70 000 Euros, unless the taxpayer opts for an alternative method of calculation, the tax office will apply the "Regime des Micro-Entreprises", whereby tax at 20% will be applied to 50% of income.
In addition, there will also be prelevement sociaux charge of 17.2% applied to 50% of income.
The obvious disadvantage with this route is that losses cannot arise. If there is a mortgage on the property and if depreciation is available, actual expenses for furnished holiday letting are likely to exceed 50% of income, especially in the early years.
This method of accounting is compulsory when turnover exceeds 70 000 Euros, or applicable by option.
The regime requires simplified accounts to be drawn up and presented each year, with tax being assessed against actual income and expenditure incurred. Expenses include a provision for depreciation.
Losses can therefore arise to be carried forward, (for a maximum of 10 years), as well as excess depreciation which can be set against future profits indefinitely.
As a result a more tax efficient approach can be maintained than under the Regime des Micro-Entreprise in France.
We specialise in organising your annual French tax declarations, and provide the following services:
- Preparation of Income & Expenditure Account for France
- Completion of French Tax Returns
- Liaison with the French Tax Office
- Registration in France of the French Lettings Activity
- Choosing the most Appropriate Tax Regime
- Completion of UK Foreign Income Form SA106
We will also choose the most appropriate tax regime in France in accordance with the level of income generated and the likelihood of registering a profit or a loss.
FREE LETTINGS INFORMATION PACK
To receive a free lettings information pack, please forward your name and address quoting WEB1 to:
Telephone: 00 44 (0)1844 218956
OTHER FRENCH TAX SERVICES
We are also able to provide services and advice on a range of other French tax issues which include:
- French Residency Planning
- French Inheritance Tax & Succession Law
- French & UK Capital Gains tax
Please refer to the individual web pages for more information on these services or contact our offices.