The French Government is proposing to limit the tax breaks currently available to professional landlords of furnished accommodation.

Whilst the new regulations are aimed mainly at limiting the tax benefits to high-rate taxpayers who invest in new developments in ski stations or seaside resorts, they are also going to hit some who own and run bed and breakfast accommodation.

As we have reported previously in these pages, owning and renting out furnished accommodation is one of the most tax efficient ways of earning an income in France.

As a non-professional landlord you can opt for either a fixed percentage allowance of 71% against the rental income, or be liable for tax on the basis of actual costs and revenues.

In the latter case, you are able to offset interest payments against rental income and carry forward losses for up to six years, thereby limiting your liability to income tax on the rental income.

Accordingly, by becoming a professional landlord of furnished accommodation, you are able to substantially reduce, or remove entirely, your liability to income tax.

To become a professional landlord your gross rental receipts need to exceed €23,000 per annum, or your rental income needs be greater than 50% of your total income. You would then normally become liable for the payment of social security contributions on your income, although not if you had another professional occupation.

Whilst few owners of bed and breakfast accommodation would generate revenues in excess of the ceiling figure, for many it is their principal occupation, so they would become eligible under the 50% rule.

Those who have invested heavily in the purchase and restoration of a property to undertake the business, and who are being taxed on the basis of actual costs and revenues, could well lose out.

Thus, borrow funds to restore and convert a property for bed and breakfast accommodation, with interest payments then offset against liability to income tax on your total revenues. With a secondary source of income (pension), it might be possible to do this indefinitely!

At the present time, the Government has not stated precisely how it is proposing to change the rules, but it is unlikely that the tax concession will be abolished altogether.

These changes form part of a wider Government plan to cut back on the number and generosity of some of the tax breaks currently available. Two other notable targets are to reduce the tax breaks for those who invest in the French dependant territories, and to those who renovate listed buildings.

The Government have identified several hundred tax breaks in the current tax system and, at one point, there was talk of abolishing the vast majority of them. This was always an absurd idea, as many are in place for important social and economic objectives. Accordingly, with the popularity of President Sarkozy at a low ebb, and with the Government not looking to make any new enemies, it looks as though the changes will be fairly modest.

You can read more in our Guide to Letting Property in France.