The revalorisation coefficient of the cadastral income for 2021

For an entrepreneur, the revalorisation coefficient of the cadastral income (CI for short) is relevant in two specific situations: if he rents out a home to a company as a private individual and if he rents out a home to his own company as a director.

Revalorization versus indexation

The CI of buildings is their estimated annual rent. “In the beginning” (in the 1960s and after) the estimated annual rent was also the amount on which income taxes were due. The tax calculation has evolved since then, but the estimate is still based on the standards and prices in 1975. In order to keep that estimate somewhat up to date, the legislator introduced a kind of indexation in the mid-1980s: the revalorisation coefficient – and for this year this coefficient amounts to 4,63.

Do not confuse revalorisation with indexation. The underlying idea (to keep the amount of the CI somewhat up to date) is the same, but the indexation is used in the property tax and personal income tax, while we only need the revalorisation coefficient in the two cases mentioned below.

Does your tenant use the building for professional purposes?

Anyone who rents out a building to a private individual pays taxes on the indexed (!) CI of that building. However, if you rent out to a company or non for profit organisation, or to a natural person who uses the building for professional purposes, you pay taxes on the net rental price.
This is obtained by deducting a lump sum cost of 40% of the rent. However, there is a maximum to this lump sum cost, I.e. 2/3 of the revalued CI.

Example: The annual rent of a building is 10.000 euros. You may then deduct 4.000 euros as costs: the net rent equals to 6.000 euros. Suppose the building has an CI of 1.000 euros, then the lump sum cost cannot exceed 2/3 of 1.000 euros x 4.63, I.e. is 3.086,67 euros. The taxable amount is therefore 6.913,33 euros, instead of 6,000 euros. If the CI of the house were 1.500 euros, then 40% of the rent is lower than the maximum (2/3 of 1.500 euros x 4.63 = 4.630 euros) and you will be taxed on 6.000 euros.

Do you rent out to your own company?

The second situation in which we use the revalorisation coefficient is that of the director who rents out a property to the company of which he is the director. This is a measure that was intended to prevent abuses: because of the lump sum cost of 40% (see above), it was often more interesting to receive rent than wages. But the rent that the director receives from his company is converted into professional income by the anti-abuse provision. This will happen if and to the extent that the rent is higher than 5/3 of the revalorised CI.

Example: Suppose the director receives 10.000 euros for a house with an CI of 1.000 euros. The reclassification from rent to professional income applies to the part of the rent that is higher than 5/3 of 1.000 euros x 4.63 = 7.716,67 euros. The director therefore receives 7.716,67 euros in rent (from which he may deduct 40% costs) and 2.383,33 euros in professional income (which is added to his other professional income).