New French property law may attract more investors

France recently enjoyed praises from International Living. Reports say that the country boasts of the best quality of life in the world. On top of that, there is another development that may interest buy-to-let investors. There is a new law that will make things easier for property investors who lease their freehold property to a management company. This is known as the leaseback scheme.

The leaseback scheme allows overseas investors to buy a freehold property and let it to an approved management company between nine and eleven years. The company is obliged to pay a fixed rental for the property even if it is not being utilized. This way, the investor is guaranteed a monthly income for the property and can make appropriate forecasts. However, this means that the rental income the investor gets during peak season will probably be relatively lower than the price that they can get in the open market, but this is a small price to pay for guaranteed regular income during the off-peak seasons.

In the past, investors under the leaseback scheme did not have to pay the 19.6 per cent VAT on the purchase price of the property earnings unless they sold the freehold within the duration of the agreed term. A portion of the VAT, called TVA in France, would be payable to the government. The proportion is arrived upon by subtracting the number of years the agreement had been in operation for from 20.

For a nine year lease, once it had run its course, the owner would pay 11/20 of the VAT on the original price. With inflation over those nine years, the proportion payable would most likely be almost insignificant. If the property owner is under leasehold for 20 years, no VAT payable would be required upon expiry of the lease.

Posted on: France

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New French property law may attract more investors

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