Summary of the Leaseback Concept
Leaseback is a French government incentive designed to encourage tourism. Introduced in the 1970s, it allows purchasers to buy a freehold apartment and then lease it back to an approved management company to let for a 9 to 11 year term.
An innovative concept that combines real estate investment and possibilities of residential stays in an attractive tax and financial environment.
The leaseback programs are located in the best locations in terms of capital-gain potentials and mostly on the French Riviera, Central Paris and ski resorts.
You are a full owner, you create an estate of quality, you entrust the rental, management and maintenance of your residence to a company in the quality hotel management business.
You receive in return major tax break from the French administration as well as a guaranteed income for the duration of the contract.
A commercial lease of a minimum of 9 years guarantees the rental management and the rental revenues.
At the end of the leaseback period, the property is yours to do with as you please, you can continue to rent it out, use it yourself or sell it possibly to start a new lease. You benefit from the Status of non-professional lessor of furnished property LMNP (tax free rental revenues) in most of the scheme.
You recover the VAT from the amount of your acquisition (19.6%).
You may use a few weeks per year in your property.
You benefit from a complete service such as provision of furnishing, decoration, and electrical appliances.
Hotel services are available: reception, house linen, green space, pool, 24 h security.
From January 2007, a new law effectively boosts the value of leaseback properties for investors who decide to sell. Under the law as it previously stood, the payment of VAT on the purchase (19.6 per cent) was waived. 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 law 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.
Advantages for the Investors:
You are free from all concerns related to rentals, a management company will take care of the whole maintenance and letting and it is therefore hassle-free purchase for the investors living overseas.
A guaranteed return will be typically of around 4.50% net of all costs, this return can be in effect, free of French tax.
The French Government allows you to buy the property free of the 19.6% VAT LMNP (non professional lessor of furnished property).
Legal and tax structure:
Business income regime Private Limited Company under sole ownership (EURL), family or personal private ltd (SARL) which enables the business income to be taxed as personal income.
Accounting impacts during the term of the loan: deductibility of the loan interest, deductibility of miscellaneous expenses (property taxes), amortisation deductibility, or 3.3% per year for 30 years for the real property and 20% per year for personal property.
These amortizations are deferred since they are not imputable in regard to the business income.
After the end of the loan: annual imputation of the deferred amortisation up to the received net rents (Business income= 0)
Tax effect:
During the term of the loan: imputation on the rental income of the loss generated by the deduction of expenses and loan interest on received net rents (rents fully tax exempted).
After the end of the loan: Collection of the received net rents apart from taxation, during 12 to 15 additional years considering the reintegration of the deferred amortisation.
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