The Finance Bill 2025 introduces major changes for non-professional furnished tenants (LMNP), particularly with regard to capital gains on the sale of a property. This reform proposes to reinstate depreciation in the calculation of capital gains, which would put an end to a key tax advantage for investors in non-professional furnished lettings.
Why this reform of LMNP and capital gains tax?
The government explains this reform as a desire to "correct a specific feature of the tax regime for non-professional furnished lettings (LMNP) that is contributing to tensions in the rental market". At present, the tax advantages granted to LMNPs are perceived as having a negative effect on the availability of accommodation, particularly in tourist areas. In fact, the increase in short-term rentals has helped to reduce the supply of accommodation for permanent residents.
It would have been more logical to reduce the tax burden on unfurnished lettings in order to stimulate and rebalance the rental market, but we have to find a way of paying off the debt that successive governments are working to increase, thereby helping to destroy the country.
The current LMNP tax regime and property capital gains
At present, owners of furnished non-professional property (LMNP) benefit from an advantageous tax regime. They can depreciate their property, thereby reducing or cancelling out their tax liability on rental income. What's more, when the property is resold, depreciation is not taken into account when calculating capital gains, so taxation is limited.
Example:
An investor buys a flat in Annecy for €300,000 and rents it out for €12,000 a year. He can deduct €10,200 each year for depreciation, €500 for furniture depreciation, and €1,300 for charges (insurance, co-ownership, property tax). His taxable rental income is therefore reduced to zero.
On sale, even if the property has been 50% depreciated, the capital gain is calculated on the basis of the original purchase price (€300,000), without taking depreciation into account.
What the reform changes for capital gains on LMNP properties
The Finance Bill 2025 proposes to reinstate depreciation in the calculation of capital gains. In other words, the depreciation previously deducted would be added to the capital gain on resale. This would result in higher taxation for LMNP investors.
Example with the reform:
In our previous example, if the 50% depreciated flat is sold for €350,000, the taxable capital gain would be €200,000 under the new rule, compared with €50,000 under the current provisions. This is because what has been depreciated is taken into account to reduce the cost price.
A nuanced tax impact on property capital gains
Even if this reform is unfavourable to LMNP investors, there are still ways of reducing capital gains tax. It is possible to deduct work carried out on the property, take advantage of tax relief depending on the length of time the property has been held, and benefit from exemptions under certain conditions, such as when selling a second home to finance the purchase of a principal residence.
It should also be remembered that capital gains tax applies only to transfers for valuable consideration. So property donated or received by inheritance is outside the scope of this tax.
Conclusion: what the reform changes for the taxation of LMNPs
The reform contained in the Finance Bill 2025 could mark the end of a major advantage for LMNP investors, particularly where capital gains on property are concerned. If this measure is adopted, depreciation will be included in the calculation of capital gains, thereby increasing tax on resale. It is therefore crucial for property owners to understand the impact of this reform on their property projects and to optimise their tax strategy.
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