UK resident with French rental income - Micro bic or Actual Regime?

[Vlad]

Hi

We live in England (sadly) and rent out our house in France for part of the time when we cannot be there.

2008 is the first year for a tax declaration. I have a basic understanding of the Micro bic regime in which a standard percentage of turnover is applied in order to calculate a taxable profit - nice and simple! BUT we have actually made a loss (especially with some set-up costs) and I'd like to look at how to make such a declaration and avoid paying any tax for the year.

I'm really struggling to find the information to tell me what expenses can actually be deducted from income to calculate the taxable loss/profit.

Can anyone point me in the right direction?

Many thanks.

[Danny]

Vlad, The whole point of a micro regime is that it is simplified. That means a fixed percentage of turnover is applied as you say. Whether or not you have made a loss is sort of irrelevant in this system. You can't deduct any particular expenses from income because the amount to deduct is the fixed percentage that you have described. It doesn't matter what your expenditure has been (high or low).

Get some professional advice if you are unsure.

I am an artisan on a regime micro entreprise. I don't know if it is exactly the same for your income situation. I am not an accountant!

Danny

[Vlad]

Thanks Danny.

My concern is that under the micro regime we will end up paying tax but under the actual regime calculation (albeit not so simple) we would probably not.

In order to do this I need to find out where I can see what is allowed to be deducted from income and what is not.

A bit of a challenge!

[Will]

Under the micro regime, nothing is deductible. Instead, a standard percentage is applied to your income to allow for costs. Assuming this is 30% (I don't know the current percentage allowance for furnished lettings) then if you have an income of 1000€ you will be taxed on 700€. That means you pay the same tax if your actual costs are 10€ or 1100€, that is the whole rationale behind the micro regime, just as Danny says. Obviously if you expect to make a loss it is the wrong regime to choose.

 

[Ron Avery]

"Obviously if you expect to make a loss it is the wrong regime to choose."

Will, did you mean "to have chosen"?  I didn't realise that you can just register for different regimes just to suit your end of year tax situation, I thought that if you exceeded the micro turnover limits you paid a heavier rate of tax, not just had the option to change your status.[8-)]

[Pickles]

IIRC: given that what you are writing about is the letting of your holiday home, two things occur to me:

1. I think that you would have to apportion costs to take into account your own use of the property, which would reduce the amount available to offset income;

2. I suspect that many of your "start-up costs" may not be set off against your income: these would have to be set off against an eventual capital gains bill on the sale or transfer of the property.

Regards

Pickles

[Pickles]

[quote user="Ron Avery"]"Obviously if you expect to make a loss it is the wrong regime to choose."

Will, did you mean "to have chosen"?  I didn't realise that you can just register for different regimes just to suit your end of year tax situation, I thought that if you exceeded the micro turnover limits you paid a heavier rate of tax, not just had the option to change your status.[8-)][/quote]

If you are within the limit for the micro regime (for whatever source of income), but your costs are higher than are compensated for by that regime (50% is the standard deduction, I think, for the the current year, for furnished lettings, whether holiday lettings or long-term), then you can opt in to the regime réel. This opt-in commits you for two years minimum, I believe.

Regards

Pickles

(edited to clarify commitment)

[Vlad]

Pickles

Many thanks for your tips.

Clearly the basic question of where does one go to find out what costs are actually deductible against income is a tricky one. Actually I suppose no more tricky than it is in the UK where I wouldn't know where to start without going to an accountant and I guess that is the answer - anyone know a user-friendly expert comptable in the Bergerac area?

[gas]

Ther are three possible ways of treating furnished income for taxation purposes, these are as follows,

1. Micro Enterprise

2. Regime Réel.

3. Taxed under the regime for unfurnished lettings.

 

You said understand the system for Micro Enterprise, so the others work as follows.

Regime réel.

Once selected you are taxed on your income less expenses. the expenses allowed are the normal ones such as, Costs for improvements, excluding cost associated with enlargment, Insurance, life assurance policies associated with a loan in respect of the property, general management costs, local property costs, interest in respect of loans for the property, costs of a management agent, gardening costs, cost of repairs, loan fees etc. You must have supporting invoices in respect of all costs.

Once you elect to be taxed under this regime thenit is irrevocable for a period of three years.

 

You said you have made a loss in the first year, under Regime Réel losses are allowed forward against rental income for a period not longer than 9 years.

 

Unfurnished lettings.

The french tax authorities may take the view that you will be taxed under this tax regime if your letting is occasional and irregular.

 

Hope the above is off some assistance.

[Panda]

My rentals come under revenue foncier and you can offset costs of agency fees and insurances etc.  You can also offset the mortgage interest and in year one I offset all of the renovation costs which are still being carried forward as they were high hence no tax has been paid on this income thus far, this is not my main income and perhaps that is relevant?

EDIT for this income I simply declare all of these costs and income on the form 2044 Revenus Foncier of my main tax return.

The op hasnt said what costs he expects to offset, that is key I would think

[Vlad]

gas and Panda

Many thanks for your posts - really helpful!