Tax News: How Will the 2025 Finance Bill Affect Non-Professional Furnished Rental (LMNP) Investors?
The proposed Finance Bill for 2025 (PLF 2025) introduces significant changes for investors in non-professional furnished rental (LMNP) properties. Among the key measures under review, the reintroduction of amortizations into the capital gains calculation upon resale could impact the tax strategies of LMNP investors. This reform may effectively eliminate a key tax advantage, resulting in a potential increase in the tax burden when selling real estate.
Why Reform the LMNP and Capital Gains Tax?
The government justifies this measure as a way to “address a specific tax provision that heightens strain on the rental market.” Currently, the tax regime for LMNP properties, widely seen as favorable, indirectly contributes to a limited supply of housing for permanent residents, especially in tourist hotspots like Chamonix, Annecy, and other high-demand areas. The growing number of short-term furnished rentals in these areas limits the availability of permanent rental housing, a concerning trend as demand continues to increase.
This proposed reform aims to balance the housing supply between short-term furnished rentals and residences for permanent residents, while also addressing national debt reduction.
Current LMNP Tax Structure: A Capital Gains Advantage
Under the current regime, LMNP investors benefit from a favorable tax framework allowing them to amortize their property. This process significantly reduces, or even eliminates, taxes on rental income while offering a substantial advantage upon resale: amortizations are not currently factored into the capital gains calculation. This means that, even if a property has been partially amortized, the taxable gain remains calculated on the original purchase price.
Example: An investor purchases an apartment in Annecy for €300,000, generating €12,000 in annual rental income. They can deduct €10,200 annually in property depreciation, €500 for furnishings, and €1,300 in other expenses, reducing their taxable income to zero. Upon selling the property, even if it has been amortized by 50%, the taxable capital gain is calculated on the initial purchase price of €300,000, with no consideration for the amortizations applied.
What the Proposed Reform Changes for LMNP Capital Gains
The 2025 Finance Bill proposes to factor in amortizations into the capital gains calculation when selling an LMNP property. This means that previous amortizations would effectively reduce the acquisition cost, increasing the taxable capital gain and, subsequently, the tax burden upon resale.
Example with the Reform: In the above example, if the property amortized by 50% is resold for €350,000, the taxable capital gain would be €200,000 (€350,000 - €150,000 adjusted acquisition cost) instead of €50,000 under the current regime. This higher taxable base could significantly impact the tax due upon resale, directly affecting the profitability of LMNP investments.
Increased Tax Burden… But Still Ways to Optimize
Despite this new measure, there are still options to alleviate capital gains tax. Investors can still deduct certain renovation expenses, benefit from tax reductions based on the holding period, or qualify for exemptions in certain cases, such as selling a secondary residence to purchase a primary residence. It is also worth noting that transfers through inheritance or donations are not subject to capital gains tax.
Conclusion: Toward a New Era of LMNP Taxation?
If the 2025 Finance Bill is adopted, it would mark the end of a major tax advantage for LMNP owners, with amortizations included in capital gains calculations. This measure could encourage some investors to reevaluate their strategy, especially in high-demand rental markets like Chamonix or Annecy.
For investors, understanding this fiscal evolution is essential for adjusting their real estate strategy. Follow our blog to stay informed on this reform and for best practices to optimize your LMNP investments!
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