Tax & Inheritance
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Due to the tax breaks it is very unikely that you will pay any income tax in France on your leasebacks.
The French tax system related to property ownership is split into various categories. These relate to your initial purchase, the ongoing retention of the property, income received, gains on future sale and of course disposal after death. As with all tax systems, the rules in France are complex. We would suggest you contact a tax specialist to get advice about your specific investments. However, here is a guide to what you can expect as a foreigner purchasing property for investment purposes. Please note that the taxation system is subject to change.
Most investors in Leasebacks will be considered to be louer en meublé non professionnel (non-professional landlord) or LMNP and as such will be assessed for tax on the income derived from their properties under either the Micro-BIC or réel simplifié scheme. In order to be assessed under either scheme, your rental earnings must not exceed € 75,000 euros per year. Rental income assessed under the Micro-BIC or réel simplifié schemes is reduced by 72%, with only the remaining 28% being then subject to tax. The main difference between the two schemes is that under réel simplifié you will be able to claim relief on interest paid on your mortgage and any other related business expenses, whereas with Micro-BIC you will not. For this reason, many French accountants will automatically register you for assessment under réel simplifié. Therefore, under réel simplifié, if you receive € 10,000 per year in rent the figure assessed for tax will first reduce to € 2,800 and then your accountant will deduct the interest paid on your mortgage, which under current bands/rates will result in a zero French tax demand.
New legislation proposed by Sarkozy will end inheritance tax between couples, menaing that assets can be left to the surviving partner without being taxed. The inheritance allowance of each child has risen 200% from €50,000 to €150,000 per parent per child and gifts allowance has also risen. Anyone who own French property will benefit as the country’s tax rules apply to any asset owned in the country even if the owner lives and dies in another country.
This tax is payable on the sale of land or buildings, and is calculated on the difference between the sale price and the original purchase price. A resident of France pays 27% an EU resident pays 16% and a non-EU resident pays 33.3%. In calculating the gain on property, there is a 10% reduction in the taxable gain for each complete year of ownership after five years. So after 15 years there is no tax payable.
local property taxes (tax fonciere) This annual tax is imposed on the owner, whether or not the property is actually occupied by them or rented out. Like UK council tax it is based on a notional rental value determined by condition, size and location of the property. It is suggested to allow 30 euros per square metre a year for this tax. There is also a ‘tax d’habitation’ which is imposed on the occupier of a property. Therefore, if you rent it out on a regular basis the tax is paid by your tenant which in the case of a leaseback would be your management company. However, new buildings, additions to exisiting buildings and rural conversions may be exempt from this tax for 2 two years.
This tax is payable on all goods and services and is currently 19.6% and in most cases is included in the purchase price when you buy your leaseback property. However, in the case of a leaseback, the French government then refunds the full 19.6% tax as an investor incemtive. The VAT refund feature of a leaseback makes it one of the lowest net deposit methods of purchasing property available.
RSA - France tax treaty
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