Leaseback purchasers could avoid new French property tax

Last week, brought you news that the French government was planning to impose a new 20% tax on second homes for all non-French residents. If successfully passed through parliament, the tax, which is estimated to impact around 360,000 mainly British and Dutch homeowners, would come into effect from January next year.

Despite the discouraging effect the new charges are bound to have on the local property market, particularly amongst British buyers who consider the comparatively low rates of taxation a major drawcard to owning a French property , there is a loophole which still allows those wanting to own a holiday home in France to skip the tax. The 'residence de tourisme classee' or leaseback scheme, which involves buyers purchasing a new-build holiday property, then effectively leasing it back to the developer (whilst retaining a set amount of personal usage weeks per year), will not be affected by the new laws, say developers and legal experts.

Charlie Williams, Business Development Manager at leading leaseback development firm Terresens, says that despite the short-sightedness of the planned new taxation laws, leaseback was one sector of the market that would luckily remain unaffected. "The proposed changes by the French government appear very populist proposals to win votes in an election year", said Williams, referring to the 176 million euros the new tax would erase from the national budget deficit annually. "They do not attract foreign investment, may conflict with EU principles and therefore may well not be agreed. However, potential property buyers should not be put off buying in France as leaseback properties, by their very nature, will be exempt from this proposed new tax."

As the tax of 20% of a property's rental value will only apply to those homes which remain regularly available to owners for personal use, leaseback properties, which are effectively rented out year-round, will not qualify, says property lawyer David Anderson of Sykes Anderson LLP. "If the property is rented and so not  frely available to the owner the tax will not apply", says Anderson. "This means leasebacks will not be affected." 

With leaseback properties also being exempt from VAT, buyers will effectively be getting a double discount if the new laws come in next year. "Leasebacks offer a safe, secure and hassle-free way of owning a home in France, and its exemption from this proposed new tax is further evidence of the program's merit."

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