|
Investors in property in Languedoc, south France, have something to smile about since the beginning of 2007: a new law now effectively boosts the value of leaseback properties for owners who decide to sell.
Leaseback is a French government incentive designed to encourage tourism. Introduced in the 1970’s, it allows purchasers to buy a freehold apartment and then lease it back to an approved management company to let for a 9–11 year term.
Under the leaseback law as it previously stood, the payment of VAT on the purchase – a hefty 19.6 per cent - was waived, which was (and still is) a rather attractive proposition for buyers. The drawback was that if the property was sold on before twenty years had elapsed, the seller was obliged to repay the French state a proportion of the VAT, calculated at one per cent per annum.
The good news is that under the new leaseback law, which came into effect in January 2007, and subsequent recent revisions, the vendor is no longer required to repay any VAT at all when selling their leaseback property; the only condition is that the residence must be classified with an official tourism star rating, and that the leaseback arrangements remain in place.
Says solicitor and chartered tax adviser David Anderson of London solicitors Sykes Anderson LLP: “This important change to the French Tax Code will bring a greater liquidity to the resale market for leasebacks in France, and is to be welcomed.”
Richard Deans of French alpine developer MGM comments: “The new law represents a significant and immediate increase in capital value for investors, who are being attracted in increasing numbers.”
Leaseback: the low-down
- Leaseback agreements in France (known in French as bail commercial) are designed primarily for investors. They apply only to new-build homes which are always located in popular resorts (typically, in the mountains or on the coast).
- One of leaseback schemes’ main attractions in south France is the refund of the 19.6 per cent VAT included in the selling price. The buyer leases the property back to a management company for a minimum of 9 years, and a maximum of 11, for a guaranteed annual return (usually 4-5 per cent of the property’s value, depending on the number of weeks’ personal use).
- At the end of the leaseback contract the owner can negotiate a new leaseback agreement (provided the management company agrees), or recover the property, either for personal use or to let out privately.
- Be aware that once a leaseback property in France has been recovered, the owner is liable for all the charges, which will have been paid previously by the management company.
- In some French Alpine resorts where local authorities are worried about the shortage of rental properties, laws have been introduced making renewal of leaseback arrangements for a further seven years compulsory at the end of the initial 9- or 11-year term.
- An alternative to leaseback is guaranteed buy-to-let. Typically, this scheme is based on a three-year lease contract, reflecting the French three-year lease agreements (it can be renewed for three years at a time, and run for up to nine years). However, there is no VAT refund applicable on this type of purchase.
Click here to read about leaseback schemes and new build property developments in Languedoc, south France.
|
