Gite owners to throw in the (pool) towel?

In a shock move to many owners of gites in France, the charges imposed on them by the government next year will increase by more than 500%.

OK so everyone knows that owners of gites and holiday rentals in France have a pretty easy life, sitting around in the sun and waiting for the money to come rolling in. What more could you ask for?

Unfortunately for most owners the money doesn’t come rolling in, it comes trickling in – and attracting customers to the gites is the big challenge each year. But we enjoy ourselves, and many gite owners will have some other sideline or way to earn a bit of cash, from mowing the owners lawn to whizzing back to the UK from Monday to Friday each week to do a ‘real’ job.

Until now the one advantage of running holiday rentals in France is that it has been taxed essentially as a ‘sideline’ business, and owners have paid very little social contributions on their income (note: ‘very little’ when compared with other businesses in France, not with other countries).

By classifying holiday rentals as a ‘micro-enterprise’ it has been possible to earn up to about 76,000 euros a year, then to deduct 71% of income as assumed-costs (without having to prove the costs), and then paying taxes and social contribution (at a low rate) on the balance. So someone earning 50k euros income would pay charges on 14k euros, and end up paying perhaps 2-4k euros.

Most gites don’t of course earn 76k (the majority would earn less than 32k euros) but believe me, this system is exceptionally generous compared to other businesses in France.

Well, the ‘loophole’ has been spotted and micro-businesses that do holiday rentals can now earn only 32k euros, and can only deduct 50% as assumed costs.

Above this limit the business has to use ‘real costs’ not ‘assumed costs’ and typical costs for a gite business (ignoring loan costs and building costs) are only about 20% of income. They will also have to pay social contributions at a rate of 47% instead of 12%.

This means that a business earning 30k will see their contributions rise a bit – perhaps from 1k to 2k euros a year. But one earning 50k, as above, will now pay perhaps 15k a year instead of 3k.

Result – for many owners with a couple of properties it will now be pointless earning more than 32k euros – it may well be more profitable to have them sit empty than to have people in them and bringing money into the local economy.

Well that sounds like a good idea, then.

It is certainly true that owners have ‘had it good’ when compared with other small businesses in France (which are famously horrendous to run because of the enormous charges imposed) but to bring property-owners into line in this draconian way in a poor year for the economy is an exceptionally hard-line approach to take.

Attracting customers for 2009 will be harder than ever, property will be slow or impossible to sell if things don’t work out, and even if everything goes well and customers come flooding in the owner is faced with an unsustainable level of charges.

One other ‘amusing’ twist – the change has not yet passed into the rulebooks, and I understand it probably won’t until sometime in 2009. So owners won’t know if they can take bookings above the 32k euro level until it’s too late to get more bookings!

Gee thanks Mr Sarkozy, just what we hoped for – a move to make even more small businesses impossible to run.

Note for owners: if you are in this position you need to find an accountant. There may be ways to increase your ‘costs of running the business’ to a very high percentage of income eg by depreciating the buildings that are used, but you need professional advice before doing this, there may be future tax risks etc.