Bad news for furnished landlords subject to LMP status. From 2021, they will be subject to social security contributions at a variable rate of 35% to 40% on their profits. Here are some simulations to illustrate the cost of this new tax system.
It’s a little cold shower. From 2021, all landlords subject to LMP (professional furnished rental company) status will be subject to social security contributions. As a reminder, in the eyes of the tax authorities, professional landlords in LMP are households that meet the following two conditions:
they have annual income from furnished rentals exceeding 23,000 euros;
their rental income is greater than the sum of their other activity income (listed here)
The rates of these social contributions will be variable, between 35 to 40% of the profits made through furnished rental activities. Until now, the profits of professional landlords who were not registered in the Trade and Companies Register were subject to simple social security contributions, at the fixed rate of 17.2% of their profits. This is the first small blow for donors.
Second blow of the sledgehammer: even if the donors – thanks to the advantageous taxation of the real regime – manage not to have taxable profit, they will bear a minimum flat rate of social contributions. Under the real regime, furnished rental companies can reduce their total annual profits to zero, by deducting the rents received:
maintenance and repair costs;
management and insurance fees;
depreciation of housing generally over 30 years, depreciation of furniture and major works over a period of 5 to 10 years, which allows to deduct each year between 10% and 20% of their price.
Of course, the new law will still allow them to subtract all these costs from their taxable profit. However, from 2021, LMP donors will be required to pay a minimum flat rate of 1,145 euros to be paid to Urssaf. And this, even if they manage to deduct all of their rental profit. Finally, a third parameter to look out for for donors: being subject to social contributions will have serious consequences on their capital gains on resale … We will come back to this later.
Social contributions that will be expensive
To illustrate concretely what the new regulations will cost, the specialist jedeclaremonmeuble.com has carried out concrete simulations for Capital. Our expert thus takes the example of Mr. Dupont, owner of a studio and a two-room apartment that he rents furnished 800 and 1,200 euros per month. It is not registered in the Trade and Companies Register (RCS). In total, Mr. Dupont’s income amounts to 24,000 euros per year. It is subject to LMP status.
Mr. Dupont, like many lessors with LMP status and in real regime, deducted many rental charges in his profit declaration in 2020. He deduced so much that his net profit became loss-making. Last year, Mr. Dupont therefore paid no taxes or social security contributions on this “zero euro profit”. With the new reform, in 2021, Mr. Dupont will have to pay the minimum flat rate of social contributions of 1,145 euros. And that, even if he wipes out his profit entirely through his expense deductions.
Mrs. Duchemin, too, owns a studio and a two-room apartment whose rents bring her 24,000 euros per year. She is also not registered with the RCS. Out of its 24,000 euros in annual rent, it declares 3,000 euros in profits after taking into account the various deductions of charges to which it can claim. In 2020, Ms. Duchemin’s profits were subject to social security contributions, up to 17.2% * 3,000 euros = 516 euros in tax. In 2021, if it presents the same net result, it will have to pay social security contributions ranging between 35 and 40% of profits. That is to say, in this case, 40% * 3,000 = 1,200 euros. In one year, she will therefore have more than doubled the sums she has to pay for her furnished rental business.
Big impacts on capital gains
Finally, the last impact and not the least for LMP lessors: the tax on the capital gains of professionals. This is the tax paid by LMP lessors when reselling their property. This tax depends on the length of ownership of the property, the difference between its purchase price and its sale price, as well as the tax status of the lessor (LMP, or LMNP) at the time of sale. As a reminder, the lessor in LMP status is subject to the professional capital gains regime, the lessor in LMNP to that of individual capital gains. However, from 2021, the taxation of capital gains for sellers under the LMP regime will be increased. Our expert jedeclaremonmeuble.com illustrates this with these two examples.
Let us first take up the case of Mr. Dupont. He bought his studio in year N for 200,000 euros and carried out work in this studio for 20,000 euros. He decides to resell his property in year N + 4 years. The sale price is 300,000 euros, its gross capital gain is therefore 100,000 euros. Mr. Dupont has depreciated his home over 30 years, his furniture over 5 years, and his major works over ten years. Under these conditions, in total, it accumulates 35,333 euros in depreciation.
If Mr. Dupont is in LMP status at the time of sale, in 2021: he will pay a total of 48,275 euros in tax on his capital gain. This calculation first includes the so-called “short-term” capital gain (imposed on income tax and social security contributions of 35 to 40%), which corresponds to the depreciation made on the property. He then adds up the so-called “long-term” gain, corresponding to 30% of the difference between the sale price and the purchase price. The previous year, he would have paid 45,785 euros to the tax authorities. Or about 2,500 euros less. A little tip for Mr. Dupont: if he had gone back to LMNP status the year of his sale, he would have been subject to the personal capital gains regime. He would then have paid only 24,830 euros in taxes, and no longer 48,275 euros for professional capital gains! Hence the great importance for Mr. Dupont to anticipate his tax regime well before the transaction.
Let us now take the example of Mrs. Duchemin. Like Mr. Dupont, she bought her studio in year N, for 200,000 euros as well. She carried out work in her home for 20,000 euros. She decides to resell her home in year N + 10, for 350,000 euros. Its gross capital gain is therefore 150,000 euros. Its amortization, calculated over ten years, is much higher than that of Mr. Dupont: it is 80,830 euros.
With characteristics similar to Mr. Dupont, Ms. Duchemin, who waited ten years before reselling her property, will have to pay 20,956 euros in social security contributions in LMP status. It benefits from an exemption (possible beyond 5 years) on the capital gain, but not on social contributions. The previous year, she would have paid 11,862 euros in social security contributions. Almost half as much as in 2021! Despite the blow of bamboo on its capital gain in LMP regime, Ms. Duchemin is however right not to want to go back to non-professional furnished regime (LMNP) to sell. It would indeed pay 32,005 euros in tax in this context, that is to say 11,000 additional euros. You will understand: choosing the right time to sell and with the right tax regime, it will remain an essential exercise to save a maximum of thousands of euros.