French Leaseback Buy to Let

Overview

Investing in bricks and mortar is generally regarded as one of the safest and most effective vehicles to :

Generate regular income
Achieve capital growth
Investment Gearing
Create capital over the long-term
Accumulate or diversify assets
Benefit from favourable tax measures and/or financial incentives.
Usage of the property for holidays or short breaks

One of the best ways to achieve this is through a French Buy to Let Leaseback ⁽¹⁾ :

In layman’s terms, a Leaseback Buy to Let Investment or “Location Meublée en Résidence de Tourisme” in French, is considered by the French Code Civil as a “commercial asset and activity”.

This entitles the buyer to reclaim the VAT (currently 20%) on the purchase price of the property, the parking place and furniture but also on the Notary and any other professionals’ fees (where chargeable VAT applies).

VAT advance: some Property Developers will advance the VAT for the buyer when the purchase completes. In this case, the price you pay is net of VAT(1), others won’t.

When the VAT is not advanced by the Property Developer, you will need to pay the full price including VAT and after completion, (applicable to off-plan properties) file for the VAT rebate with the local Tax Office (Centre des Impôts). This can take up to 6 months following completion of the development. Always check which of the two cases applies.

The Management Company automatically deducts VAT on rental income for non-residents. The rental income paid to you is therefore net.

Should you wish to sell your Buy to Let Leaseback property, you can do so anytime⁽²⁾. We will be happy to discuss it with you, survey your property and market your property to Foreign buyers.

^{(1) Contact us for information on the terms and conditions. Some tax schemes may be subject to legislative or regulatory changes.}

^{(2) Please note that the VAT rebate is conditioned by your Freehold property being made available for lettings for a period of 20 years. On a resale, the new buyer will naturally take over the remaining of the Lease and benefit from the property depreciation being recalculated from the date of purchase. VAT only needs to be charged by the vendor, on the original property purchase price and on a pro-rata temporis basis if the buyer doesn’t take over/sign a lease with the management company. The options will always be stipulated in the Lease’s agreement the new buyer signs before exchange of contracts and also clearly explained by the Notary before completion.}

Tax returns

With a French Leaseback Buy to Let scheme you can deduct all charges/expenditures relating to your French-based investment (including furniture depreciation, just like you would on the UK furnished Buy to Let) from your rental income but most importantly and unlike in the UK, you can also offset the property capital depreciation ⁽¹⁾.

Expenditures :

Notary / Conveyancing Fees
Loan/Mortgage interests
Council tax
Management, Maintenance charges, rates (when applicable)
Other professionals’ fees (Solicitor, Accountant, Bank…)
Renovation, refurbishment
Capital Depreciation of the furniture…

But more importantly :

Capital Depreciation of the property

This effectively creates a recurring annual deficit and therefore, produces tax-free rental income. The accumulated deficits and generated by the property and furniture depreciation can be carried forward on future income without time restrictions and can also be offset against revenues of the same nature/category held in France (Bénéfices Industriels et Commerciaux, B.I.C).

^{(1) Contact us for information on the terms and conditions. Some tax schemes may be subject to legislative or regulatory changes.}

Depreciation

Whilst we do not necessarily encourage you to become an expert in French Accounting rules, we do feel that a little factual information and basic understanding of the ins and outs of French Leaseback Buy to Let cannot hurt. So let’s “open the engine”:

One of the main principles of accrual accounting requires that an asset’s cost be proportionally expensed based on the time period over which the asset was used. Both depreciation and amortisation (as well as depletion) are methods that are used to prorate the cost of a specific type of asset to the asset’s life.

Depreciation (also called Amortisation or Depletion) usually refers to spreading a tangible or intangible asset’s cost over that asset’s useful life.
For example, furniture usually has a life of 10 years. The cost of the furniture is spread out over its life, with each portion of the cost being expensed and recorded each accounting year on the French Tax Returns’ income/expenditure statement.
The category used for the Tax Returns is that of “BIC”: translating as “Industrial and Commercial Revenues”).
Our London based French Accountant will assist you will all the formalities.

Depreciation (Amortisation) works as follows :

Property (excluding land value): 10 to 30 years (up to 100 years for the structure) | 3-5% average per year is generally accepted as a deduction
Furniture: 10 years | 10% per year

Over and above the deductions of the usual allowable expenditures from the rental income, the depreciation of the furniture but most importantly that of the property can significantly reduce or exempt you from any Income Tax liability on your rental income.
The deficit thus generated by the property and furniture depreciation can be carried forward indefinitely.