French properties may be classic freehold or leaseback. Leaseback apartments are in larger developments which are professionally managed and rented so you save the VAT. There is another option (which works for both new chalets and apartments), you can buy a classic freehold property and create your own lease and then you can still reclaim the VAT.
Some larger developments (often with swimming pools, wellness, restaurants and other facilities) have a full professional management service which will rent your apartment out when you are not using it. The property is freehold property but the day you buy it, you agree to “lease it back” to a management company for a minimum period of 9 years. During this time your property is fully managed and maintained by the letting agent but you may block out periods for your own use. The latest leaseback properties offer more flexible owners’ use than previously.
Buyers are given a tax incentive to rent their apartment. You do not have to pay the 20% TVA (French VAT) which you usually have to pay for a new classic freehold apartment. The prices in our brochures are therefore shown as net of VAT. Some leasebacks give a guaranteed index-linked rental income; others give you a share of the actual rental income for the weeks your apartment is in the rental pool.
2. Classic Freehold
Most properties are classic freehold. This is a second home property and you are not obliged to rent it. You may keep the property for your exclusive use or rent it.
3. DIY Leaseback
If you buy a new “classic freehold” chalet or apartment and you choose to rent it on a commercial basis you can still reclaim the TVA and effectively get a 20% discount off the gross purchase price shown in our brochure. To qualify for the tax incentive given by the French tax office the rental arrangement has to satisfy their rules. You must rent your property to a specialist company (we can introduce you to one) on a long lease. The rental company must provide some basic services to the renters. You can block out periods for your own use so it is quite flexible. Depending on how many weeks you take yourself, the rental company will either offer you a fixed rental for the season or (more likely) pay you for each week it is rented.
The TVA you can reclaim is 20% and this is amortised over 20 years so if you decide after 10 years that you wish to cancel the lease and keep the property for your exclusive use you would pay back half the tax you saved. You can cancel at any time or sell the property on to a buyer who could either carry on the rental arrangement or pay back part of the TVA and keep the property for their own exclusive use.
- Classic freehold property – there is no obligation to rent your property.
- Leaseback property – you are required to rent this property for a minimum period of 9 years (further details above), but you may block out periods for your own use.
- Leaseback schemes are a tax incentive to encourage owners to rent their property and create employment so there are plenty of benefits:
TVA rebate – the buyer receives a 20% VAT rebate / discount on the gross purchase price
- Guaranteed rental returns – some management companies give you a guaranteed quarterly or bi-annual rental income which is reduced according to a tariff for the weeks you use it yourself
- Low purchase price – typically leaseback properties are in larger developments which are competitively priced
- A trouble-free investment – the management company will organise and fund the maintenance of your property
- Furnishing and storage – leaseback properties are usually sold fully-furnished with a private storage space for the owners to use while their property is rented
You are simply signing a commercial lease (rather than a simple rental mandate) with a management company who carry out key services.
This means you are deemed to be running a commercial enterprise and therefore entitled to recover the VAT. It is more of a commitment than a rental mandate and the restrictions are ones that don’t affect the normal owner (can’t live there for more than 182 days a year and have to make it available for around 8 winter weeks).
In France, unlike Switzerland and Austria, there are no restrictions on foreign buyers so all property types are eligible for purchase by foreigners.