Scellier Law and French leaseback: double tax benefit

The Scellier law is a new plan related to the property market and was introduced in December 2008. The Scellier-Bouvard law is very similar to the Scellier law, except that it only concerns properties purchased for leaseback.

Scellier law definition
Scellier law gives the opportunity to benefit from tax reductions up to 37% of the cost price of a 2010 new build property.

Investors
The law is aimed at French taxpayers who purchase a new build property (or under construction) between January 1st 2010 and December 31st 2012. They benefit from the following tax reduction:
25% for 2010 investors
15% for 2011 investors
10% for 2012 investors

Properties
The law refers to all the new build properties whose thermal characteristics and energy efficiency comply with current regulations (RT 2000, RT 2005 and RT BBC). Heritage listed properties are excluded.

Obligations
The Scellier law gives the opportunity to benefit from 25% tax reduction of the cost price of the property, under the following conditions:
The investor commits himself to rent the property for at least 9 years.
There is a 300,000€ investment limit.
The investor has to commit himself to rent the property within 12 months of construction being finalised
The tax reduction is valid for one property per year only.
The rent must not exceed limits set by decree.

Additional Information
-   There are two different systems in the Scellier law:
The Scellier system offers a 25% tax reduction for a 9 year commitment period.
The Scellier Social system offers a 37% potential tax reduction: 9 year commitment period, with the opportunity to extend it to 15 years (2 x 3 years extra). The tax payer benefits then from a 30% abatement on the rent, and, by renewing his commitment at the end of the 9 years, will get the advantage of an extra 2% reduction per year.
-   When the tax reduction for a year exceeds the tax amount due for this same year, the
balance can be transferred to the IR (“Impot sur le Revenu” – Income Tax) for the following years - up until and including the 6th year.

Example:
For a 300,000€ investment:
-   According to the Scellier system, the reduction is 75,000€ over 9 years, which equates
to 8, 333.33€/year.
-   According to the Scellier Social system, the reduction is 111 000€ over 15 years,
which equates to 8,333.33€ for the first 9 years and 6,000€ for the following 6 years.

Leaseback:
After the French Assembley voted on March 19th 2009, the Senate passed the extension of the Scellier system to « Location Meublee a la Residence de Tourisme » (Leaseback). In regards to investment in student residences, holiday resorts, rest-homes, this law, Scellier-Bouvard, allow the investor to claim back TVA (VAT), as well as the 25% tax reduction on the cost price of the property *

-   Example 1: The cost price of this residence is 205,000€, excluding tax. According to
the Scellier law, the purchaser would claim back VAT – 205,000*0,196=40,180€ - and would benefit from a 25% reduction tax (for a 9 year commitment period), which equates to a 51,250€ reduction. In total, the purchaser is saving 91,430€.

-   Example 2: The cost price of this residence is 95,000€, excluding tax. According to
the Scellier law, the purchaser would claim back VAT – 95,000*0.196= 18,620€ - and would benefit from a 25% reduction tax (for a 9 year commitment period), which equates to a 23,750€ reduction. In total, the purchaser is saving 42,370€.

-   Example 3: The cost price of this residence is 300,000€, excluding tax. According to
the Scellier law, the purchaser would claim back VAT – 300,000*0.196= 58,800€ - and would benefit from a 25% reduction tax (for a 9 year commitment period), which equates to a 75,000€ reduction. In total, the purchaser is saving133,800€.

Conclusion
This plan has been set to combat the financial crisis and is already attracting a lot of investors. However, since the law has been passed under these special circumstances, it is unlikely that it will remain in effect past 2012.

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* with a 300 000€ limit of investment and for a 9 year commitment period