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French Leaseback (Residence de Tourisme)

Leaseback DordogneLeaseback properties may be residential units, commercial property, student residences, holiday accommodation (eg ski, beach and golf resorts) or almost any other type of commercial real estate in France. Leaseback properties are sold by promoters working with property management companies. The initial lease is typically 9 to 11 years with net rental yields usually between 3 and 6% per annum (based on the purchase price).

Leaseback of residential property has been popular in France for many years. Under the current scheme the purchaser may use the property usually for between one and eight weeks per year (up to a maximum of 6 months per year). However, there are also significant tax advantages to buying a leaseback property. In order to encourage the development of leaseback schemes in tourist areas and thereby alleviate shortages in rental accommodation, the French government offers a VAT rebate of 19.6% of the purchase price at the time of purchase. If you retain your property for at least 20 years this money is yours to keep, moreover if you retain your property for at least 15 years you will also avoid paying capital gains tax. You can however choose to sell your leaseback property at any time. If you choose to do so during the initial lease period (which is on average between nine and eleven years), the buyer will be required to take over the remainder of the lease contract. If you choose to sell your property at the end of the lease period  without a renewal contract you will be required to pay back 9/20 of the VAT. As of January 2008, however, if you choose to sell your property with a renewed lease contract you will no longer be obligated to pay this.

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There are two ways to financing your property investment: an Interest-only (IO) mortgage or a classic French mortgage with monthly repayments. The chart below gives an indication of the relative cost of each option based on a deposit of 40%. It is worth noting however that with a higher deposit than this, the property will normally pay for itself with the yield covering the repayments.


If you choose an interest-only mortgage you will have minimal monthly repayments and earn money from your property from year one (based on €125,000 investment with a 5% return, a 5% interest rate mortgage and a 40% deposit). When you come to sell the property you will be able to make a profit on the sale as the price of the property is more than likely to have increased. ILeaseback French Alpsf however you are buying a property as a source of extra income in the future, then the monthly repayment option would be better: as soon as the mortgage is paid off (year 15 on the graph above), you will start to enjoy an income. Furthermore if you choose to sell you will keep the full amount of the sale - but don’t forget, if the value of your property increases (as is more than likely) you will be have to pay capital gains unless you have had the property for more than 15 years.
 For more advice regarding mortgages, please do not hesitate to contact us.

You are required by UK law to declare any income you receive from any property in France, however as there is a tax treaty between France and the UK you will only pay tax on your property once, normally in the country in which you permanently reside. If your property is a Leaseback there is a way in which you can avoid paying income tax altogether. To find out how call us on +44 (0)20 7428 4910.

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