Changes to the real estate tax system in 2018 : Stability despite a few modifications

Maud Velter’s expert opinion, Associate Director of Lodgis
A certified notary, Maud Velter is a specialist in furnished and seasonal rentals. After working in the real estate department of a major Parisian notorial firm, she joined Lodgis in 2006 as Associate Director and Legal Director. As well as her work at Lodgis, she regularly takes part in conferences on the legal and financial issues surrouning furnished and seasonal rentals. Maud Velter has also written « The Practical Guide to Furnished and Seasonal Rentals » (Éditions Maxima). www.maudvelter.com

The 2018 Finance Bill is developing the real estate tax system. What are the major changes ? What will be the consequences be on the market ? Maud Velter, Associate Director at Lodgis explains the situation.

The ISF will become the IFI

The transformation of the Wealth Tax (Impôt sur la Fortune, ISF) into the Real Estate Wealth Tax (Impôt sur la Fortune Immobilière, IFI) is the major change in the 2018 finance bill. Only real estate assets worth more than 1.3 million euros will be taken into account with this new tax. The scale and the tax rate will stay the same as before. The 30% deduction on the primary residence will also stay the same, as well as the exemption for properties considered professional properties.

This measure will end up affecting very few landlords. However, this is a bad sign for potential investors who be more likely to turn towards shareholding than housing. Adding further limits to investing in real estate is not particularly desirable.

Increased thresholds for the Micro-Bic system

The changes proposed by the finance bill include increasing the thresholds of the Micro-Bic system, increasing the 2017 income tax thesholds:

• from 33,200 € to 70,000 € a year for furnished rentals excluding rentals for tourists
• from 82,800 € to 170,000 € a year for listed furnished rentals for tourists and for guesthouses

This change will allow a greater number of tenants in furnished rentals to benefit from the Micro-Bic system, a simpler tax system with which landlords can enjoy a 50 % lump sum allowance on their rental income. Nevertheless, the régime réel is still the most advantageous in most cases since it allows you to deduct all charges (maintenance work, loan interest, management fees, insurance, etc.) and to write off expenses for the property, furnishings and major renovations.

Increase for CSG

The 1.7 % increase for the Generalized Social Contribution (contribution sociale généralisée, CSG) will come into effect from the 1st January 2018, meaning that the social security charges on capital income will increase from 15.5 % to 17.2 %. This measure will impact all rental income whether the property is furnished or unfurnished. There will be no direct impact on landlords’ rental options.

Exemption from Real Estate Contributions for Businesses

Article 45 of the 2018 finance bill states that from 2018 there will be exemption from minimum Real Estate Contributions for Businesses (CFE, Cotisation Foncière des Entreprises) for turnover or income less than or equal to 5,000 €. Few landlords will benefit from this new change for furnished rentals, since they normally declare rental income of over 5,000 €.

« The real estate tax system for furnished rentals is relatively stable. And this stability is good news for investors » concludes Maud Velter from LODGIS.

Read more:

• Maud Velter's analysis of the implementation of registration numbers for furnished rentals for tourists in Paris from the 1st December
• Paris furnished rentals barometer - 2017 third quarter: Europeans, the top tenants for furnished rentals in Paris
• Furnished rentals: who are the investors?

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