Tax Information & Benefits
Advantages of Buying under the French Leaseback system
The French government's 'Residence de Tourisme', or 'Leaseback' schemes have been introduced to increase the quantity of holiday accommodation available in tourist hot-spots.
Effectively you buy a holiday home in France freehold, and then lease it back to the management company/operator for a period of 9 years. The lease will allow you to use your property yourself for several weeks of the year in different seasons.
A fixed rental income (typically 3-7%) is guaranteed by the Operator throughout the 9 year term of the lease enabling you to cover a proportion (or all) of the mortgage costs. You don't pay VAT on the purchase price - a saving of 19.6%. (All new property in France is otherwise sold with VAT included in the total price).
The property is fully maintained by the management company and most property costs incurred are paid for by them. At the end of the lease term you can either extend the lease or reclaim the property for yourself as freehold.
Purchase Tax
All property purchases in France must be completed through a Notaire, a public representative. The Notaire's fees are levied as a percentage of the value of the purchase, much like Stamp Duties in the UK or Ireland, and are typically in the region of 2%-3.5%.
Furnished property lettings are exempt from VAT because of the leaseback scheme. The VAT will be financed by the Developer upon signing the Acte de Vente and then will be refunded by the government to the Notaire who will use the fund to repay the developer.
Local Property Taxes (Council Tax)
There are two types of local property taxes in France: Residential Tax (Taxe d’Habitation) and Real Estate Tax (Taxe Foncière).
Residential Tax (Taxe D'Habitation)
Owners at Les Jardins de Saint-Benoît will not be liable for residential tax.
Real Estate Tax (Taxe Fonciere)
Real Estate tax is similar to the rates levied in most countries, and is used by the local authorities to cover the costs of rubbish collection, lighting, maintenance of communal areas etc. The tax is levied on the basis of the theoretical rental value of the property, and is adjusted annually in line with inflation. The authorities have yet to evaluate the Les Jardins de Saint-Benoît for this tax, however it is unlikely to exceed €12 per m² per annum as Les Jardins de Saint-Benoît is a new development.
Tax on Rental Income
Both the UK and Ireland share a double taxation treaty with France. This treaty ensures that taxes are levied in only one country (e.g. in France or the UK, not both). The standard rate for taxation of rental income in France is 25%. Owners who are declaring other income in France may be liable at a higher rate. A number of tax deductions are available to owners to offset the revenues. These include deductions for maintenance, cleaning costs, mortgage interest (French loans only), management and letting expenses and insurance.
With Les Jardins de Saint-Benoît, you will be entitled to amortize the cost of the house over 20 years and the furniture over five years. Assuming you have no other income tax liabilities in France, most leaseback owners do not end up paying income tax on their Leaseback rental revenues.
Tax on Disposal
Inheritance Tax
The rate of inheritance tax payable in France depends on the beneficiary. Currently, spouses and children will pay no more than 20% on all net receipts below a rate currently set at €520,000. We recommend that you speak to your Notaire about your specific inheritance requirements.
Capital Gains Tax
Capital Gains Tax in France is currently set at 16% of net gain for EU citizens who are not ordinarily resident or domiciled in France. This Capital Gains tax liability in France tapers by 10% every year after the first 5 years, until after 15 years there is no Capital Gains Tax liable in France. Owners will be liable solely for Capital Gains tax in their country of residence for tax purposes.
