French service Micro-BIC or Simplified Real ? Don't get caught out


Micro-BIC is the default taxation regime under which income received for letting out furnished French property is taxed. In other words, if you do not indicate any other preference, and your income is less than 76,000 euros per French tax (i.e. calendar) year, you will be taxed under this regime.
 
Under Micro-BIC, you are taxed on a fixed percentage of your turnover, being 28%. If you are UK tax resident the tax rate which is then applied is a uniform 25%; if you are French resident, the applicable rates are the usual marginal income tax rates. Micro-BIC takes no account of actual deductions.
 
As the Micro-BIC deduction is fixed, it benefits greatly those whose actual deductions do not approach the potentially generous 72% of turnover.
 
However, what if your actual deductions are greater than this ? Supposing the whole of your first year rent is exhausted by your costs? French tax law allows you to opt for a regime where actual deductions are taken into account. What's more, if you are French tax resident, you can set off any loss you make against other income, for example your salary. This regime is known as the simplified real regime.
 
Remember to distinguish between income and capital expenses. An income expense is broadly one which is repeated on a regular basis, for example the monthly cleaning of a swimming pool. A capital expense is broadly one which relates to a one-off or irregular event, e.g. building a swimming pool. Only income expenses are deductible under simplified real. (Capital expenses are deductible for the purposes of French capital gains tax, which this article does not address.)
 
So where's the catch ? Well, there are two catches; the first is that the election to be taxed under simplified real must be made by 1st February of the relevant tax year; the second is that this election is irrevocable for two tax years. Therefore, to know whether it is worth taking advantage of this regime, you must have an idea by 1st February of the relevant year what your income losses for that year and the next are likely to be, and particularly whether, on average over the two years or longer they are likely to exceed 72% of turnover. If they are, it may well be worth making the election.
 
Finally, be aware that if you are UK tax resident, your French income is subject to UK tax at your usual marginal rates (although tax already paid in France is deducted from your UK bill). Your income for UK purposes will be taxed in the usual way, with the usual deductions, irrespective of how it is treated in France. So always keep invoices and receipts.

Please note that taxation and national insurance is a complex subject and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
Sykes Anderson has experience in advising on the taxation of rental income in both the UK and France and how to plan for it in the most efficient way.
Please contact us at sbrownstein@sykesanderson.comm or on 020 7398 4700.
http://www.sykesanderson.com/service_france/default.asp


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French service Micro-BIC or Simplified Real ? Don't get caught out
Micro-BIC is the default taxation regime under which income received for letting out furnished French property is taxed. In other words, if you do not indicate any other...

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