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 31st July 2010
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 Leaseback property in France - the basics Q What is leaseback?It is a unique French scheme under which the or purchaser buys a house or flat – often but not always a new build – and then leases it back to a rental company to let it out. The company offers the owner a guaranteed rental income for the term of the lease, which is typically nine years, renewable. The return can be anything between 3 and 6 per cent of the initial asking price. The French government refunds to the purchaser the VAT at 19.6% included in the asking price. Q Why does the French government give you back money? It is an incentive to encourage would-be purchasers to take part in the scheme which in turn encourages developers to build more developments. You also charge the tenants VAT at 5.5% so in a way the VAT is slowly clawed back over 20 years. Q Why does the government want to see more development? The French government set up the leaseback scheme in the 1980’s to help the country’s hugely important tourism industry. The most popular form of the scheme is known in French as résidence de tourisme classée (RTC). Q So it is a kind of timeshare? No! A leaseback purchase is just what it says – you purchase the property then you lease it back. So it is a capital investment and you own the freehold. Q Who uses it? French people mostly, though an increasing number of non-residents are starting to take advantage of the scheme. For anyone who is tax resident in France the leaseback scheme can be offset against income tax. Many French people use them as investments to help pay for their retirement. Q Can non-residents buy? Yes and many do. Q Whereabouts are leaseback properties in France? Typically in coastal and mountain resorts and big cities but more and more are being built in rural areas. Some are now based around golf courses. Q What bills will I have to pay? Once the purchase is complete and the scheme is up and running the buyer pays their mortgage repayments (if applicable), their mortgage protection payment (again if applicable) and the local taxe foncière or property tax, which is usually a modest sum. On a two bedroom flat this might be around 300 euros a year but rates vary. The tax is not usually payable for the first two years of a new build. The management company usually pays the other bills though you need to check the lease you sign carefully to see what is down to you as the owner – these costs are reflected in the rental income you receive. Q Is the rental income guaranteed? Yes, the rental company you are leasing to guarantees the rate. Rental rates are usually index linked to the rise in national construction costs. So the income should increase during the time of the lease. Q Can I use a mortgage to buy a leaseback property? Yes, many people fund their leaseback purchase with a mortgage. French banks and other lenders are used to providing mortgages for leasebacks. Non-residents can get mortgages of up top 80 per cent of the purchase price. Q Will I have to pay tax on my rental income in France? Yes. All income earned in France is taxed in France though the mortgage interest can be offset against the income. Usually the rental company arranges it so you do not pay income tax in France. Q: Can I use the property for myself? Yes though if you opt to use the property for a few weeks a year this will reduce the rental yield slightly. Q Can I purchase leaseback through my UK pension fund? Yes, if you use a Self-invested Personal Pension (SIPP) this allows you to get income tax and capital gains tax advantages that are normally only applicable to French residents. James Churchman Director of Carlton House Partnership in London adds: ‘Please note you will not be able to use the property for personal use if purchased in this way. And it is of paramount importance to seek FSA and legal advice before discussing any pension fund transactions.’ Q: How long do the leases last for? Typically the leases are for nine years and are then renewable. Q: Can I sell it before the leaseback period expires? Yes but it may not be a great idea. The purchaser will have to take it on with the existing lease. You will also have to pay back a proportion of the VAT rebate you received - unless the new owner carries on the leaseback. Q: Should I see expert advice? Yes! Buying leasebacks can be a very good investment whether or not you are resident in France. But you need to be sure that the rules and restrictions surrounding a leaseback are right for your circumstances. They are seen by many experts as a long term investment. So, for example, if you want to keep buying and selling your properties then leaseback may well not be the best solution for you. And always make sure you know exactly what it is you are signing. If you are not sure, ask. Michael Streeter, editor FrenchEntrée Property See also: Can you use your pension to invest in leaseback property? ‘Think long term when you buy lease back' VAT rule change on leasebacks  A beginner's guide to buying French property ‘Why I bought a French leaseback flat’ Leaseback Property Mortgages French Leaseback Schemes French Leaseback - Buying Leaseback Properties in France Home Page Looking for a property in France? Use FrenchEntrée's Property Finders to help you find your property and to help you through the buying process 
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