Your New Property in France The French Leaseback Scheme

The French Leaseback Scheme can be a great way to buy new build or newly refurbished property if getting a fixed rate of return on your investment is a high priority and you don't mind restrictions on the amount of time you can use it.

Essentially what you are doing when you enter this type of contract is buying a freehold property but granting its lease to a holiday company for a period of between 9 and 11 years where the rental return is fixed and guaranteed regardless of whether it is rented out or not. They are hence normally located in popular holiday resorts. It is possible to get a higher return from renting the property during the summer months yourself but this of course brings with it a risk and hassle factor.

Refunded VAT:

One of the great bonuses of this scheme is that the purchaser gets a full refund of the TVA (VAT) of 19.6% if it is a new build property which is either refunded 6-9 months after the purchase or paid and reclaimed by the developer in which case the purchaser never has to pay it.

At the end of the initial lease period, the holiday company usually reserves the right to lease it again until the 20th year after its construction but this is very rarely insisted upon if the client is not in agreement.

If you choose not to lease your apartment out again or sell it then you will have to pay a proportion of the TVA according to how many years are left outstanding from the first 20 years. For example, if the property has been under lease contract for 11 years and there are therefore 9 years remaining, then the amount of TVA that must be paid back to the French government is 9/20ths of the TVA. After 20 years TVA is no longer payable. Remember, if you sell the property during its lease contract then it must be sold with the contract intact to a likeminded individual who is prepared to see the contract through.

Guaranteed Return on Investment:

The guaranteed investment return will typically be around the 5% mark net of all costs tax-free as you benefit from non-professional lessor of furnished property status (LMNP). This in effect means that you will receive as much interest as you would in a high yielding savings account as well as the opportunity to gain from capital appreciation of the property.

Personal Use:

Leasebacks often allow the owner the option to occupy the property for a number of weeks a year in return for slightly lower investment yields. If you choose not to use the weeks then you will usually get a higher annual yield.

The Management Company:

An experienced management company will take care of the entire maintenance of the apartment or villa, usually with hotel services available such as reception, house linen, well-kept gardens, swimming pools and 24hr security.

Furnishing:

All furnishing, decoration and electrical appliances are supplied and taken care of by the management company.

Accounting Impacts During the Leaseback's Term

* Deductibility of the loan interest

* Deductibility of miscellaneous expenses (property taxes)

* Amortisation deductibility - 3.3% per year for 30 years. However, they are deferred and not imputable in regard to the business income.

After the leaseback's term, the deferred amortisation can be imputed and set against the received net rents.

Notary Fees and Sales Process:

The sales process follows the same routine as for new build properties with the same corresponding notary fees: 3% on new builds and for refurbished leaseback properties you will have to pay the usual 7-8% notary fees on the property before refurbishment - working out at between 4% and 6% of the value of the purchase price.

Better than Timeshare:

Unlike time share schemes, the owner actually sees a return on his/her investment through annual rental yields and also appreciation in the value of the property which can be substantial - so it is not money down the drain. The bonus though with these schemes is that, like time share, the property will be well maintained by the holiday company with no responsibility for changing of linen and cleaning - you simply turn up during your chosen weeks and enjoy it!

Nick Dowlatshahi is the managing director of Leapfrog Properties, a UK specialist agency in French property. Leapfrog offer an online database of up to 200,000 properties for sale in France plus a personal service from fluent French speakers to help you find, view and buy your property. Leapfrog Properties website is at http://www.leapfrog-properties.com.