LMP status, the smart way to prepare for your retirement

This status, provided one knows how to use it appropriately, offers numerous fiscal advantages and enables one to obtain a solid retirement whilst ensuring the transmission of your estate.

Benefiting from this status grants certain categories of professionals the right to social cover in the event that they cease their activity.

This applies, for example, in the case of a shopkeeper who decides to sell their store. Through this means, many costs usually incurred during estate transmission can be avoided.

Its great flexibility is another advantage. Indeed, everyone can find what suits them as it can be adapted to each individual’s particular needs. It is advisable not to rush into structuring the transaction and to analyse the type of property purchased as well as the existing estate. Several types of properties may be affected by this status: traditional houses, flats, and dwellings within a serviced residence (tourist, student, or retirement home type).

What conditions must be met to obtain professional furnished rental status?

According to Article 151 of the General Tax Code (CGI), to benefit from LMP status, two conditions must be met:

It is absolutely mandatory that the VAT-inclusive turnover generated from renting the furnished property or properties exceeds €23,000 per year and represents more than half of total income.

Registration with the Trade and Companies Register (RCS) is mandatory.

However, some professions are legally not entitled to the title of merchant. Liberal professions are the main ones affected and cannot carry on a commercial activity unless they comply with certain rules.

Deficits and LMP

The lessor must declare rental income as BIC (industrial and commercial profits). Subsequently, the lessor will decide on the tax regime best suited to their objectives.

For individuals whose profit does not exceed €32,000 per year, the micro-BIC regime exists. Here, the lessor benefits from a 50% allowance on their gains. More clearly, only half of the rental income will be taxed. Furthermore, in the event of significant charges to be paid by the lessor, the best solution is to choose the actual regime. It is indeed possible to deduct from rental income the charges arising from the acquisition of property. A deficit may arise from this. A wide spectrum of expenses may be generated by these charges: loan interest in the case of the lessor having financed all or part of their purchase through credit, professional taxes (for those who must pay them), syndicate fees, loan insurance, and property taxes.

There are two scenarios:

Hypothesis no. 1: A deficit will arise when charges exceed gains. This will be imputed to the lessor’s total income over the following six years. More precisely, it will be deducted from income, thereby reducing taxes. This is unlike the non-professional furnished rental lessor who can only subtract this deficit from their furnished rental income.

Hypothesis no. 2: Charges are lower than profits. Here, the depreciation of the property spread over twenty years will be deducted from rental income so that the sum of rental income equals zero. Thus, gains will be net of taxes due to depreciation. Furthermore, the lessor will benefit from a saving on social contributions which, depending on the case, can range from 7 to 25%. As one can deduce, as these are partly based on their income, should this decrease, these contributions would also be reduced.

Exemption from solidarity tax on wealth and capital gains

Two other fiscal advantages are to be credited to LMP status. Indeed, it enjoys an exemption regarding capital gains generated upon the sale of property. However, the following two conditions must be met:

Profits realised must be less than €90,000.

More than five years of rental activity.

Depending on the case, it is possible to be exempt from ISF (solidarity tax on wealth). To benefit, the lessor must report receipts exceeding €23,000 per year. This activity must also represent a sum amounting to more than 50% of household income.

Finally, LMP status facilitates bequests to descendants. The lessor’s descendants will indeed have to pay succession duties, previously reduced through an arrangement adapted to this type of operation.

It is recommended to consult a specialist to ensure the project has been carried out under the best possible legal conditions. Sextant France, experts in this field, would be delighted to assist you with your property purchase proceedings if you feel the need.

Here is the list of resale LMNP properties available with Sextant which will enable you to build a portfolio of 4-5 LMNP properties which will allow you to obtain LMP status