The reform on the Cotisation Foncière des Entreprises (CFE) for Managed LMNP (Loueurs en Meublé Non Professionnels) has introduced changes that impact the tax status of these owners. According to the BOFIP, BOI-IF-CFE-10-30-10-50 dated 08/11/2023, ‘the activities of letting or subletting furnished premises are deemed to be professional in application of the provisions of the second paragraph of I of article 1447 of the General Tax Code (CGI)’. LMNP activities in managed residences are therefore now subject to the CFE. Here is a detailed explanation.

1. LMNP status :

The status of Loueur en Meublé Non Professionnel (Furnished Non-Professional Renter) allows individuals to rent furnished property while benefiting from an advantageous tax regime, particularly in terms of taxation of rental income (micro-BIC regime or actual regime).

2. CFE or Cotisation Foncière des Entreprises:

The CFE is a local tax payable by all businesses and individuals carrying on a self-employed professional activity. In the case of LMNP, even if the lessor is not a professional, he is considered to be carrying on the commercial activity of renting out furnished accommodation, and is therefore liable for CFE.

3. Partial or total exemption from CFE before the reform :

Prior to the reform, furnished lettings operators could benefit under certain conditions from a total or partial exemption from CFE, particularly if their business was small-scale (depending on turnover or local conditions).

4. CFE reform for managed LMNPs :

The reform is aimed specifically at LMNPs under management (those who entrust the rental management of their property to a company, as in service residences such as student residences or residences for senior citizens). The main change concerns the alignment of the CFE regime for LMNPs with that for traditional commercial activities, which has the following effects:

- Loss of CFE exemption for certain managed LMNPs: LMNP owners who entrust management to professional operators may lose the partial or total CFE exemption from which they previously benefited. The aim of this reform is to treat activities managed directly by the owner in the same way as those entrusted to professional managers.

Good to know:

‘In the year they are set up, new businesses are exempt from CFE.

‘The year after they are set up, new businesses benefit from a 50% reduction in their tax base.’

5. Let's take a concrete example to illustrate the impact of the CFE reform for an owner with a managed LMNP property.

Initial situation (before the reform):

Let's imagine an individual, Marie, who owns a furnished flat in a student residence in Toulouse. She has entrusted the management of her property to a specialist company (the residence manager).

Here are the details of her investment:

Annual rental income: €10,000

CFE before the reform: Marie benefited from a partial exemption due to the small size of her business and the special status of student residences. She paid just €100 in CFE per year.

Situation after the reform :

Marie's situation has changed as a result of the reform: the CFE tax base has been recalculated on the basis of the rental value of the flat, and the amount has been revalued.

New CFE calculation after the reform:

Rental value of the property N-2 i.e. 2022: €2,160 (estimated amount based on 3 criteria, the weighted surface area of the premises, the category of the premises and the location coefficient)

CFE rate in Toulouse for 2024: 38.55

New CFE: €2,160 (rental value) × 38.55% (CFE rate) = €832.68 CFE for 2024

Before the reform, Marie paid €100 in CFE thanks to the partial exemption. After the reform, she will now have to pay €832.68 in CFE.

6. Impact on LMNP owners :

Increase in tax charges: Owners of property in managed residences could see their CFE increase significantly, thus impacting the net profitability of their rental investment.

With this new reform, it's important to take stock of your rental investments. The Finankap Group team is here to help you put in place the most appropriate tax strategy for your profile. Contact us!

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