The Finance Act 2025 introduces a significant change for real estate investors using the Non-Professional Furnished Rental (LMNP) status. Whether you already own a furnished rental property or are considering investing in real estate, here’s everything you need to know about this reform and its tax implications.
What is the LMNP Status?
The LMNP status is one of the most popular tax regimes among real estate investors in France. It offers several benefits, including:
The ability to earn rental income with reduced taxation.
The deduction of property depreciation, which significantly lowers taxable rental income.
However, the Finance Act 2025 introduces changes to these advantages, particularly during property sales.
The Key Change: Reintegrating Depreciation into Capital Gains Tax Calculation
Starting January 1, 2025, the rules for calculating real estate capital gains when selling a furnished rental property under LMNP status will change.
Before the reform: Depreciation deductions taken during the rental period were not included in the capital gains calculation, making this status highly advantageous from a tax perspective.
After the reform: Depreciation must now be reintegrated, potentially increasing taxable gains.
Example:
Property purchase price: €200,000
Depreciation deducted: €50,000
Adjusted purchase price for capital gains calculation: €200,000 - €50,000 = €150,000
This means the taxable capital gain will be calculated on a higher base, resulting in increased taxes upon sale.
Why This Reform?
The government aims to align the taxation of LMNP properties with other real estate investment regimes, addressing what has been perceived as overly generous tax advantages. This reform also seeks to moderate the pressures on the rental market by curbing tax incentives.
Impact on Real Estate Investors
This reform will affect both current and future property owners. Here are the main consequences:
Reduced Tax Benefits for LMNP: While still advantageous for earning rental income, LMNP status becomes less favorable upon resale due to higher tax obligations.
The Need to Plan Sales Carefully: Investors will need to reassess the overall profitability of their projects, factoring in this new tax constraint.
Strategic Adjustments: Some property owners may explore alternative tax regimes or rethink their investment strategies.
How to Adapt to This Reform
If this change affects you, here are some tips to optimize your real estate strategy:
Evaluate the Tax Impact: Calculate the potential consequences of reintegrated depreciation on future sales.
Diversify Your Investments: Consider other tax-efficient options, such as traditional rental income schemes or investments in REITs (Real Estate Investment Trusts).
Seek Professional Advice: Financial planners, tax advisors, and real estate agencies can guide you through this new framework.
Why LMNP Remains a Valuable Option
Despite this reform, the LMNP status still offers several advantages:
Attractive tax benefits on rental income through the real tax regime.
The opportunity to invest in high-demand properties, such as small apartments or student residences.
A flexible management system suitable for investors looking to maximize income while controlling tax exposure.
Conclusion
The Finance Act 2025 reform introduces a new challenge for LMNP investors, but with careful planning, it’s still possible to enjoy the benefits of this status. Whether you’re considering selling a property or investing in furnished rentals, don’t hesitate to reach out to our team for expert advice and support.
Want to learn more or ask questions? Contact us today!
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