LMNP / LMP

LMNP - LMP: an attractive tax regime ?

Furnished rental has grown considerably over the past few years, and the reason is undoubtedly the attractive tax treatment it offers, on a par with that of bare or "unfurnished" rental.

Furnished rentals are classified as "Bénéfices Industriels et Commerciaux" ("BIC"), whereas bare rentals are classified as "revenus fonciers" ("land income").

For this reason alone, renting furnished enables the lessor to pay lower taxes than when renting bare property. In other words, they pay less income tax than if they were renting unfurnished.

Why is this an attractive option ?

Essentially, because the rules applicable to BIC allow you to depreciate your assets, both furniture and real estate (see the "depreciation" section). These are general rules specific to BIC, not to furnished rentals.

Furnished rentals do, however, have a number of specific features. We have identified three of them :

• Application of the deferred depreciation rule (article 39 C of the French General Tax Code (CGI)) - CF under "Depreciation".
• LMNP (Loueur en Meublé Non Professionnel) rental property is subject to capital gains tax for private individuals - CF section "LMNP - LMP status".
• The LMNP deficit can be deducted from profits for the following 10 years (and not 6 years as for non-professional BIC) - CF heading "LMNP - LMP status".

Bare rental vs. furnished rental

Which is more advantageous ?

Bare-rental remains more attractive than furnished-rental from a tax point of view when purchasing a property with works. This is because, in the case of income from property, the works - provided they are not construction or reconstruction works - are fully deductible in the year they are paid for, whereas in the case of furnished rental, they must be capitalized and depreciated over their "useful life".

What is LMNP status ?

LMNP, also known as "location meublée non professionnelle" (non-professional furnished rental), is a status that allows you to benefit from the tax regime applicable to furnished rentals. It is usually applied to rental property investments.

LMNP status - condition 1

To qualify for LMNP non-professional furnished-rental status, you need to be registered with the French Trade and Companies Registry.

This is because the renter will receive rental income that is treated as industrial and commercial profits (BIC).

To register with the RCS, you can contact the CFE (Centre de formalité des entreprises) or the clerk's office of the relevant Commercial Court.

LMNP status - condition 2

To qualify for LMNP status, the property or properties to be rented must be for residential use. The property may be a house, an apartment, a duplex, a houseboat, etc.

It is possible to set up seasonal rental management of your property and still qualify for LMNP status.

LMNP status - condition 3

To qualify for LMNP status, you need to be a private individual. The LMNP status does not apply to legal entities.

However, there are exceptions for so-called translucent companies, such as family companies and SCIs.

LMNP status - condition 4

In order to qualify as a non-professional furnished rental, the rental must provide all the equipment necessary for the tenant to live in the property.

The tenant must be able to bring only his or her personal belongings into the property, and thus be able to make a long-term rental. We invite you to discover the list of properties required for LMNP on our dedicated article.

LMNP status - condition 5

In addition, rental income must be lower than the taxpayer's income from professional activities.

If the taxpayer's income from rental income is higher than income from professional activity, the furnished rental operator will become a professional furnished rental operator, provided that rental income exceeds €23,000.

What is LMP status ?

LMP status, or "loueur en meublé professionnel", also allows you to benefit from the "loueur meublé" regime. This can give entitlement to the micro BIC (industrial and commercial profits) regime, or to the actual regime.

LMP differs from LMNP. It applies to rental property investments whose annual income exceeds the household's professional income.

To qualify for this status, the LMP conditions must be met, and we're going to look at them together.

LMP status - condition 1

The first condition for LMP status relates to income from your property rental activity.

To qualify for LMP tax status, your rental income must exceed €23,000 per year.

LMP status - condition 2

The second condition for qualifying for LMP status is also linked to your income from your furnished rental activity. In fact, your income from your real estate activity must exceed the total amount of your household's professional income.

LMP status - condition 3

The final condition for LMP status relates to social security contributions.

Since January 1, 2021, professional furnished-rental operators have been required to pay social security contributions amounting to between 35% and 40% of their profits.

If the LMP owner does not make a profit during the year, he or she will still have to pay €1,145 to the tax authorities. This applies to each year in which no profits are earned.

Taxation and accounting for LMNP rentals in serviced residences

Do you own an LMNP property in a serviced residence ? Call on Michel & Partner's to declare and account for your rental income.

It's possible to manage a furnished property without having to deal directly with its rental, while still benefiting from the tax advantages associated with furnished accommodation.

This is the principle behind leasing the property to an Operator. When you buy a lot in a tourist residence, an EHPAD, a student residence or a residence for senior citizens, you delegate the management of the property to a professional. Or, to be more precise, a single Operator leases the entire residence under a commercial lease, and is responsible for occupancy of the lots within it.

This professional is your tenant under a commercial lease, which is usually long-term.

You remain liable for industrial and commercial profits, and the support of a chartered accountant will be useful for your annual returns and VAT recovery.