The Truth about Leaseback

8/12/2009

The term "leaseback" is slightly misguiding when describing the French leaseback scheme. What is known as the "French leaseback scheme" refers mainly to two types of residences known in French as "quasi-hotelier" and "residence tourisme". But where does it come from and how does it work?

Selection Property managing director Philippe Robin is not only French, he has also been selling French leaseback properties since 2002 when he first introduced the scheme to northern European investors. Below are a few points which he has put together to give you a clear understanding of the French leaseback scheme.

Background : As shown by the official 2007 report from the World Tourism Organization (UNWTO) , France is still the number 1 tourism destination in the world, by a long shot! Official figures for the top 5 foreign tourists’ arrivals in 2006 are as follows:

France: 79 million
Spain: 58.5 million
USA: 51.1 million
China: 49.6 million
Italy: 41.1 million

Introduced over 20 years ago by the French government, the leaseback scheme is an incentive offered to investors in order for the French economy to meet the needs for tourist accommodation. As tourism figures keep increasing (4.2% per annum in 2006 alone), so does the need for accommodation.

How does it work? A French leaseback development has to be located in a holiday or urban area where there is a need for leisure or business tourism accommodation. There is a rental management company on site which finds holiday makers or business visitors and provides services such as reception, household linen, cleaning etc…

When you purchase a leaseback property, you are actually the FREEHOLD owner of that property and you are also a co-owner of the development communal areas. Most properties are sold furnished so you don't have to find the furniture yourself. When you buy the property, you sign a RENTAL AGREEMENT with the rental management company. This agreement is for a minimum period of 9 years and it can be renewed. . The rental management company is therefore effectively your tenant and pays you a rent as well as allows you some personal use of your property. Terms of the leaseback scheme, rental income, personal use and facilities vary from development to development: the rental income may be guaranteed or flexible and the level of personal use may be up to 6 months per annum.

The VAT DISCOUNT : You also benefit from the very attractive VAT concession, which represents a saving of up to 19.6% on the property price. Either the developer pays the VAT for you or you receive a refund a few months after completion. Until 2007 you had to pay back some of the VAT when you you’re your property however , since July 2007, the introduction of a new tax law (CGI article 257) means that you do not have to pay back any of the VAT as long as the new owner takes over the remainder of your rental agreement! This makes the process of reselling your property even easier and enables you to sell it at a very attractive price!

Income and Capital Gains Tax : You pay income tax at the rate of 16% (plus national insurance contributions if you’re a French resident) on the rental income that you earn in France. However there are several items that can be deducted from your taxable income and effectively reduce the amount of tax to a minimal amount, if anything at all. Such items include interest payments on your French mortgage (should you purchase with a French mortgage) and what is called a depreciation rate. There is also a double taxation agreement between France and the UK and France and Ireland. With regard to Capital Gains Tax, the rate is the same and there is a tax allowance starting from year 5 to year 15. By keeping the property for 15 years or more, you benefit from the full allowance and effectively end up paying no tax on your gains!

To summarize, the French leaseback scheme can be a safe long term investment which offers a turnkey and no maintenance property, a huge discount on its purchase price, hassle-free rental income as well as personal use of your property. Most rental management companies now also offer an exchange program whereby you can decide to spend your personal use in any of their other developments, regardless of where your own property is located. This means that you can buy a property on the coast and spend a few weeks in your property, another few weeks in a ski resort and another few weeks in the countryside should you wish to do so! All this in a country which is quickly and easily accessible by train, ferry or plane and offers a unique variety of landscapes and activities, not to mention wonderful food and wines, warm seas and plenty of sun!

With properties in many countries across the globe, Selection Property can give you unbiased advice about whether a property, or even a country, is suitable for you. Please contact us for more information on the French leaseback scheme or other properties that meet your needs.

Alternatively, please use our keyword search facility by typing "leaseback" to see a selection of French leaseback properties.