Rental real estate, along with life insurance, is one of the French people's favorite investments. It constitutes for them a secure means of ensuring their retirement (the amount of pensions of which remains increasingly uncertain) or of passing on assets to their children.
Yet many investors still make mistakes, both in determining the economic profitability of a real estate project and in choosing the best tax structuring.
This is particularly true for investment in a new development where, far too often, investors will set their sights on a property located in a district not offering good prospects for development with the sole aim of benefiting from the famous “Pinel reduction”.
This is all the more unfortunate as investing in new real estate has many other advantages: much lower charges than in old properties, absence of major work to be carried out before many years, possibility of obtaining a zero-interest loan more easily, absence of property tax for two years, etc.
The “Pinel” system, which replaced the “Duflot” system since September 1, 2014, allows you to benefit, under certain conditions, from a tax reduction due to the acquisition of real estate (generally new).
This tax reduction varies between 12% and 21% of the purchase price (rate intended to decrease gradually from 2023 to be between 9% and 14% from 2024) depending on the duration of the rental commitment (which varies between 6 and 9 years, and which can be extended by three years).
Thus, the Public Treasury can indirectly contribute to the acquisition of real estate up to 21% of its purchase price (14% from 2024).
The importance of this tax reduction leads many investors to make two major mistakes:
Investing in a bad program;
Systematically opt for the “Pinel” system when other tax options could, given the situation and objectives of the investor, be more interesting.
The purpose of this study is thus to highlight the different elements making it possible to ensure the good profitability of a real estate investment project and to present the various tax options, applicable to both new and existing real estate, which are available to the investor.
How to ensure the economic profitability of your project
Several elements must be taken into account:
The purchase price: if it is legitimate for the price of a new apartment to be higher than the market price of old real estate, it must not be too high compared to that -this. If the price per m2 including tax offered in a new program is more than 20% higher than the average price per m2 of the existing real estate market in the same geographical area, the realization of a capital gain upon resale good will be more difficult.
We must also not forget that, upon resale, the buyer will not be able to benefit from transfer taxes at the reduced rate applicable only to new real estate. Indeed, the notary fees applicable when selling a new property are generally around 2 or 3% compared to around 7 or 8% when selling an old property. This will necessarily play a role in negotiating the sale price;
The prospect of renting without difficulty at a price allowing to cover as much as possible the monthly payments of the bank loan taken out for the acquisition of the property. This involves knowing the rental market well to know if the investor can reasonably charge a rent to cover these monthly payments.
Please note: if the investor opts for the “Pinel” system, rents will necessarily be capped. For more information on this subject, you can refer to the article entitled “Pinel” device: trap or opportunity?
The prospect of realizing a capital gain when the property is sold. If the possibility of making a capital gain on the sale of the property depends largely on the purchase price (see above), it also depends on several other factors, such as the arrival of a tram station or metro, the transfer of the head office of a large company, etc.
Thus, an investment in a new program requires a thorough knowledge of the real estate market in which the property that an investor plans to acquire is located.
It is therefore strongly recommended to be accompanied by an expert in the field, such as an asset manager practicing in this field and in whom you will trust.
Which tax option to choose?
Disadvantages of the “Pinel” device
Once the economic profitability study has been carried out, the investor must question the best tax and legal structuring to acquire the property in question.
Indeed, buying new does not necessarily imply opting for the “Pinel” system. Indeed, in return for the tax reduction to which this system can give entitlement, certain disadvantages exist, such as:
A capped rent (see above)
A tenant resource ceiling
A rental duration commitment of six or nine years (renewable for three years). This commitment may be a source of constraints in the event that the investor wishes to sell the property before the end of this commitment. Indeed, the transfer of the property before the end of the rental period commitment in principle entails the calling into question of the total amount of the income tax reduction obtained until the termination of said commitment[1 ].
A tax reduction calculated on the basis of a cost price retained within the limit of a ceiling per square meter of €5,500 and without being able to exceed the limit of €300,000 per taxpayer and for the same tax year[2]. Therefore, it is appropriate to be very vigilant with properties whose price per square meter and overall price exceed these ceilings.
The option for the “Pinel” system must therefore be analyzed carefully before subscribing to it. A study of the market rent and the desire to sell the property in the short or medium term must be carried out.
Other possible tax options
To avoid these disadvantages, other tax avenues may be available to the investor.
The bare rental excluding the option for the “Pinel” system with possible option for the micro-land tenure regime
The non-professional furnished rental with possible option for the micro-BIC regime
Professional furnished rental with possible option for the micro-BIC regime
The furnished rental with provision of para-hotel services
Investment in certain types of property such as accommodation included in a student residence or a residence for the elderly (known as the “censi-bouvard” regime)
Acquisition through a company which may or may not be subject to corporate tax
Bare rental
If the investor rents the accommodation bare, the income he derives from the property will be subject to income tax in the property income category. If he does not opt for the “Pinel” system, the investor will not be able to benefit from a tax reduction but will not in return be subject to the constraints mentioned above.
This can be particularly interesting if the investor believes that the rent he can charge will be significantly higher than the rent capped by the “Pinel” system. If the market rent is simply slightly higher than the capped rent, the option for the “Pinel” system generally remains interesting due to the tax reduction to which the “Pinel” system gives entitlement.
Certain charges exhaustively listed by law will be deductible from the rents received. This limitation on deductible expenses represents a disadvantage compared to furnished rentals (see below). Indeed, in the case of furnished rental, all expenses linked to charges relating to the property are in principle tax deductible (or depreciable if they result in particular in an increase in the lifespan of the property).
This is why so-called “construction, reconstruction or expansion” expenses cannot be deducted in the context of a bare rental unlike rental expenses. “improvement” (as long as they are not recoverable from the tenant)[3].
On the other hand, construction, reconstruction or expansion expenses may be subject to depreciation deductible from taxable income in the context of furnished rental. The depreciation of an asset consists of deducting each year for tax purposes a portion of the value of this asset based on its expected duration of use. If, for example, the property is depreciated over 50 years, the taxpayer will be able to deduct 1/50th of its value each year.
This type of expense, however, is not common in the case of a new property.
The investor can also opt for the micro-land tenure regime which allows only 70% of the amount of rent received to be taxed. It only applies if these revenues do not exceed €15,000 per year[4]. Please note: by opting for the micro-land property regime, the investor can no longer deduct any charges.
In summary, whether or not the investor of a bare rented property opts for the “Pinel” system, he will be subject to the same rules concerning the determination of the taxable result (regime micro-land tenure or real regime). The main difference will be that he will not be limited by the rent ceiling of the “Pinel” system and that he will be able to sell the property whenever he wishes without negative tax consequences.
In return, no tax reduction can be granted.
Non-professional furnished rental
In the case of furnished rental, the option for the “Pinel” device will not be possible.
However, renting furnished will not necessarily be devoid of interest for the investor.
Indeed, the advantage of furnished rental compared to bare rental is twofold:
all expenses linked to charges relating to the property are in principle tax deductible from taxable income (or depreciable if they result in particular in an increase in the lifespan of the property) while the list of deductible expenses in the framework of a bare rental is restrictive. This is particularly the case for acquisition costs;
possibility of tax depreciation of the property (excluding the value of the land). As the law does not define an exact depreciation period, this question will have to be dealt with on a case-by-case basis. At the time of the transfer of the property, the depreciation carried out up to the transfer is not taken into account to determine the amount of the taxable capital gain. This is of course a considerable advantage for the investor.
The investor can also decide to opt for the micro-BIC regime if the revenue does not exceed €70,000 [5]. In such a scenario, only 50% of the rents will be taxable. In return, no other charges (including depreciation) can be taken into account.
A numerical simulation must therefore be carried out in order to know whether the option for the micro-BIC regime is preferable to the so-called “real” regime.
It should be noted that the choice of the real regime in furnished rental requires much greater accounting and reporting obligations than in the case of bare rental or in the micro-BIC framework.
Professional furnished rental
In order to be subject to the professional furnished rental regime, the investor must meet two conditions:
receive rents greater than €23,000/year (charges included);
these rents must be higher than his professional income (of which retirement pensions are part)[6].
This regime should not be confused with the exemption regime for professional property under the real estate wealth tax . Indeed, in the latter case, it is necessary in particular that the profits from the rental (and not the rents) be greater than the professional income (of which retirement pensions are not part this time).
The benefit of the professional furnished rental regime is twofold:
possibility of charging operating deficits against the investor's overall income and not only against future profits as in the case of non-professional furnished rentals).
Certainly, when the property is new, the need to carry out work is rare and there is therefore little chance that the operation will be loss-making. However, this hypothesis may arise in particular when the property is under construction and the investor cannot yet collect his rent. Naturally, the investor cannot benefit from the professional furnished rental regime during this period since, by definition, he does not yet receive rent. The tax administration admits, however, that this deficit may be deducted in thirds from the overall income for the first three years of rental of the premises, as long as the furnished rental activity is carried out on a professional basis[7] .
Apart from the hypothesis of a property under construction, the advantage linked to the allocation of deficits to overall income is rarely interesting. Indeed, to the extent that depreciation cannot be taken into account to create a deficit (it is capped at the amount of the rent less other charges relating to the property), this implies investing in a property whose other charges that those linked to depreciation would exceed the amount of the rent[8].
The property cannot, in this hypothesis, be exempt from IFI (Real Estate Wealth Tax) to the extent that this exemption implies that the profits from the rental are higher than professional income. This cannot therefore be the case in the event of a deficit.
Possibility of benefiting from an exemption after five years with regard to the capital gain observed in the event of transfer of the property. This exemption can be total when the annual rents are less than €90,000 or partial when they are between €90,000 and €126,000[9]. In my opinion, this is the main interest of the professional furnished rental regime.
Moreover, just as in the case of non-professional furnished rentals, the investor can decide to opt for the micro-BIC regime for the taxation of their profits .
Furnished rental with provision of para-hotel services
This regime is applicable when the furnished rental is accompanied by at least three of the following services, provided under conditions similar to those offered by the hotel-type accommodation establishments operated in a professional manner (and not incidentally): breakfast, regular cleaning of premises, provision of household linen and reception, even if not personalized, of customers[10].< /p>
The tax regime for the para-hotel industry mainly allows the recovery of the VAT invoiced upon the acquisition of the new property or during certain works ( To do this, it is generally necessary to waive the basic franchise regime automatically applicable below €82,800 of rent received annually).
Moreover, like the professional furnished rental regime, the deficit arising from this operation can be charged to the taxpayer's other income when this operation includes "personal participation , continuous and direct from one of the members of the tax household to the accomplishment of the acts necessary for the activity »[11].
These conditions may represent a disadvantage compared to the tax regime for furnished rentals in which the deficit arising from the operation can be charged to the taxpayer's other income as long as the rents are greater than €23,000 and that the latter are higher than the professional income of the lessor.
But, unlike the professional furnished rental regime, the depreciation is not capped at the amount of the rent less other charges relating to the property. The depreciation practiced can therefore generate a deficit that can be carried forward to the investor's other income.
Moreover, just like the case of the professional furnished rental company, the capital gain linked to the transfer of the property is exempt when the activity has been carried out for at least five years. But the amount of capital gains that can be exempted is greater in the context of furnished rental with provision of para-hotel services than in that of professional furnished rental (total exemption up to €250,000 and partial exemption up to €250,000). €350,000)[12].
VAT relating to the acquisition and work can also be carried out if the owner rents to an operator who will provide these services himself[13].
The major disadvantage of the tax regime for the para-hotel industry, however, manifests itself in the event of a free donation/transmission or transfer of the real estate.
Indeed, in the event that the exploitation does not include “the personal, continuous and direct participation of one of the members of the tax household in the performance of the acts necessary for the activity", the transfer will not benefit from the capital gains exemption after five years applicable in the case of professional furnished rental (see above).
Moreover, whatever the type of participation in the operation, the donation of the property or the death of the operator results in the taxation of the real estate capital gain generated until this event. This is not the case in the context of non-professional furnished rental.
So-called “Censi-Bouvard” tax regime
This tax regime is applicable to certain types of investment such as accommodation included in a student residence, in a residence for the elderly or in a care establishment meeting certain conditions .
The investor must also commit to renting the property to an operator for at least nine years.
In such a scenario, an income tax reduction of 11% of the acquisition costs is possible. The VAT paid upon acquisition of the property is also recoverable under certain conditions.
This type of investment is not without danger, however. Indeed, it depends largely on the quality of manager who can potentially fall into compulsory liquidation. Furthermore, the resale of the property can sometimes pose a problem to the extent that the new buyer will no longer be able to benefit from this system and the lease contract will potentially expire soon without a guarantee of renewal.
Acquisition through a company
Acquisition through a company may be of interest particularly in the event of transmission of the property to one's children or as part of an acquisition with one's PACS partner.
The choice of legal structure is then essential. If the investor wishes, for example, to be subject to the furnished rental regime, the choice of a real estate company should be avoided. In fact, the furnished rental activity is treated as a commercial activity for tax purposes. However, a civil company carrying out a commercial activity is necessarily subject to corporate tax (subject to certain exceptions). The furnished rental regime studied previously cannot therefore apply.
Thus, the choice of thefamily SARL for example can in this case prove to be judicious.
However, it may sometimes be preferable to acquire a property through a company subject to corporate tax.
This may particularly be the case when the investor's marginal tax rate is high.
Indeed, the investor can then benefit from the lower rate of corporate tax which is 15% up to €38,120 of taxable profit and €28 % beyond (rate intended to decrease to 25% from 2022).
After payment of corporate tax, the remaining profit can then be distributed when the financial capacity of the company allows it. This is not always the case. Indeed, for the calculation of the accounting result, the entire monthly payment of the bank credit relating to the acquisition of the property is not deductible (only the part linked to interest is). Thus, it is entirely possible to have a positive accounting result, but no cash to distribute. Since the profit cannot be distributed, it can then be credited either to the partners' current account, to reserves, or to retained earnings.
When the profit can be distributed, it is in principle subject to the “Single Flat-rate Withholding ” at the rate of 30% (12.8% for income tax and 17.2% for social security contributions). The investor may, however, opt instead for the progressive income tax scale[14].
Moreover, like furnished rentals, the company subject to corporate tax can practice tax-deductible depreciation of the taxable income for corporate tax. companies.
The major disadvantage of choosing to acquire real estate through a company subject to corporate tax manifests itself, however, at the time of the transfer of the property.
Indeed, in such a scenario, unlike the furnished rental regime, all the depreciation that has been carried out will increase the amount of the capital gain taxable for tax. on companies.
In conclusion, this study shows that the choice of real estate to acquire as well as the tax option that will be chosen in terms of rental will have significant financial consequences for a large number of years. of years. Unfortunately, there is no single ideal solution that could apply to all investors. A detailed analysis by a tax lawyer based on the situation and objectives of the investor can only be recommended. Do not hesitate to come consult us in order to obtain our opinion on your real estate project.
[1] XI of article 199 novovicies of the CGI.
[2] Article 46 AZA octies B of the CGI.
[3] Article 31 I 1° b of the CGI.
[4] Article 32 of the CGI.
[5] Article 50-0 of the CGI.
[6] Article 155 IV of the CGI.
[7] BOI-BIC-CHAMP-40-20 § 260.
[8] Article 39 C of the CGI.
[9] Article 151 septies of the CGI.
[10] Article 261 D 4° of the CGI.
[11] Article 156 I 1° bis of the CGI.
[12] Article 151 septies of the CGI and BOI-BIC-CHAMP-40-20 n° 430.
[13] Article 261 D 4° of the CGI.
[14] Article 200 A of the CGI.