French Leaseback - Law change ??

[chappers]

Hi, am new to this forum, and am also new to property investment.

I am potentially looking at investing in an overseas property.

One of the possible ways which i have been researching, is the French Leaseback Scheme.

Initially i thought, yes, this is a good, hassle free way to make an investment for the future. But then reading further i noticed that there may be problems if you wanted to sell the property after the 9-11 years that the scheme was taken out for. (ie. you might not be able to sell at all, vat refund would have to be paid back?).

After looking further into this, i have read on one particular website offering leasebacks, that the French law has recently been changed in that the VAT does not have to be repaid if you sell before you have had the property for 20 years. Is this correct ?

Also, the issue of not being able to sell at all. (i think this is something to do with the property being classed as a tourist property?????). Is this still a major drawback ?? Or have there been law changes regarding this ?

Thanks.

 

[The Soup Dragon]

Chappers, I'm not aware of the recent law change you refer to. My understanding is that you would need to repay a twentieth of the VAT for each year short of 20 years that you held the property. On plus side, inflation doesn't apply to the sum you would need to repay after selling.

If you find any evidence that the VAT refund needn't be repaid (other than on Agents's sites) then please paste link on this thread.

Issue of sellability is a big one for me. Look carefully and you will find developments where purchasers can buy with leaseback or buy for their own personal use. It is more likely with these developments that you will not have to renew your lease further down the line. (That's an assumption, you should draw your own conclusions there.) If my assumption holds your property's resale market and value will not be restrained in the way that other leasebacks are.

 

[Dia Soleado Invest]

There actually has been a major modification in French Law which has now made it even more attractive for investors looking to claim their own little piece of France.

Up until recently, France was one of those markets that we sort of stayed clear from. Not because I haven’t thought that it would make a great investment, but more for the fact that the laws for recovering the VAT and the restrictions for selling up were just a little too complex for my liking.

Under French leasebacks it used to be that you could claim the VAT back right from the start, which is a whopping 19.6%, as long as it was in the leaseback scheme. The downside, was that if you sold it at anytime within the first 20 years after completion of construction, you would have to pay back a proportionate amount of the VAT that you had already recovered back to the French taxman. This was essentially handcuffing you to the property for 20 years in order to maximize your return on investment.

Thankfully, this has all changed with this recent modification, which allows you to sell at anytime without having to pay any of the VAT back to the French taxman. You still have to pay it up front, however, but you can claim the full 19.6% as soon as the sale has gone through.

By removing this barrier the leaseback schemes have become not only a lot more appealing to investors and the flippers, but it will also increase the liquidity of resales in the French property market.

I still believe that there is a lot of ‘red tape’ in the French market, but with expert advice France is still, and always will be, one of the most solid and secure markets in the world.

 

[Dia Soleado Invest]

Here's the link to the article that was posted on Overseas Property Professional back in January if your interested: http://www.opp.org.uk/news_article.asp?id=1373

You can also find excerpts of the article on our blog page at Dia Soleado Invest Blog › Your Overseas Investment Property Partner

 

[andyk2]

Hi,

I was a little unsure about this area too, so I rang up Pierre et Vacances and asked them. The deal with the VAT is that you don´t have to pay the VAT refund back, if the person buying your property is also going to rent it out. As you can´t (and wouldn´t want to) live in some of these properties for more than six months (even if you opt out of the leaseback scheme),it is more than likely that the next owner is going to rent out the property - therefore you should be aware that there is the possibility that you may have to pay back some of the refund, but it is very unlikely.

Clear as mud?

Andy

 

[DC]

It is very clear.

If you are not French do not buy French Leaseback.

If you want to buy something else, buy Freehold French Property with Guaranteed Rentals. If you want these we can give you this. It is simple.

 

[andyk2]

Mais Non!

Not so mes amies. If you are a UK citizen and use a SIPPS pension to buy the investment (which you can - see Pension Advisory Service web site) the government will put in the equivalent tax rebate and then you can borrow a further 50% of the fund -

ie. Invest £100.00 in a SIPPS, Gordon Brown gives you a further £40.000 (you´d be a higher rate tax payer if you had a hundred grand!) and borrow another £70.000. Total = £210.000

Even if you are getting a low leaseback return (say 4.5%),that´s going to generate £9.450 income per year (normally index linked) and you would be paying (say) 5% interest on the £70.000 you borrowed (£3.500),so getting a yield on the money invested of almost 6%.

It´s not going to make you rich overnight (and you can´t touch it till you retire),but it´s steady and secure.

 

[DC]

Andy it is ok to use a sipp as a tax efficient vehicle to buy commerical properties but you are not looking at the actual product you are buying and the potential down the line, for resale, and the type of property it is, and that will affect capital appreciation etc. Also remember the investment laws in france and you can not do too much buying and selling etc as you will hammered with capital gains tax etc

Leasebacks are a roses thorn, the rose looks beautiful but the thorn is the going to draw blood when you do not see it.

 

[CaroleBay]

Hey ......

It's been 7 years since we were involved in the financial services industry in UK, and I am aware that many things have changed in that time - we only involve ourselves with keeping up to date with legislation on this side of the channel, which is time consuming enough ....

I do remember that there was a lot of talk of pension funds possibly being used for buying foreign property, but did it actually become possible ? (we haven't come across anyone who has bought a property this way).

In UK, I certainly never even contemplated advising anyone to use their pension fund to purchase their main home, let alone another property.
A pension fund is there to provide an income in retirement, not to speculate with.

Commercial properties are a totally different matter, and to repeat Goldberg, a SIPP can be a tax efficient vehicle for this purpose.

Buying in the private sector in the right location, will undoubtedly give you better returns than your annual income from a leaseback and its eventual sale price.

Carole Bayliss
mortgagefrance

 

[pladecalvo]

One of the possible ways which i have been researching, is the French Leaseback Scheme.

Initially i thought, yes, this is a good, hassle free way to make an investment for the future. But then reading further i noticed that there may be problems if you wanted to sell the property after the 9-11 years that the scheme was taken out for. (ie. you might not be able to sell at all, vat refund would have to be paid back?).

After looking further into this, i have read on one particular website offering leasebacks, that the French law has recently been changed in that the VAT does not have to be repaid if you sell before you have had the property for 20 years. Is this correct ?

No it isn't! Originally you had to pay back the VAT to the government. Under the new law you no longer have to do that BUT you now have to reduce the sale price of the property to account for the amount of VAT that you owe. So you still have to repay the VAT...just in a different way!

It's probably too late now judging by the date on your post but my advice to you is stay away from leasebacks. I've had one near Paris for 5 years and it has been nothing but trouble. I rue the day I ever heard of leaseback. From what I've been reading on this and other forums, the problems I've had so far will pale into insignificance compared with the problems to come when I want to sell at the end of the first 9 year period. For me, leaseback has been a total waste of time and money.

 

[Nostradamus]

French Leaseback are advantageous for french nationals but bear in mind that they are very difficult to resell especially after 11 years of wear and tear (being a touristic residence)

 

[sextant]

French Leaseback properties

Hi Nostradamus,

Most of the,<snip> companies we work with have a dedicated owner department who take care of paying the rent on time etc. They also deal with resale if someone decide to do so.

To calculate the price of a resale leaseback there are two methods:
- Either you calculate the price based on the rental income received during the current year.
- Either you calculate the price in function of the location of the property.

Or even better you do a mix of both methods to get an average price (my personal choice).

When our previous customers want to resell their leaseback we refer them to their leaseback management company owner dept and they are sold within a few months to French or international buyers.