Leaseback Property and Tax Relief

[Panda]

Hi

Anyone have any experience of leaseback property and off setting the difference between the set return that you get (around 4.5%) and the actual cost of the appartment (mortgage being higher than annual return) against your tax bill:

Furnished apartment purchase: the practice of redemption reinstatement allows to erase partly the operation’s income; two possible orientations:

a) LMNP status (LMNP: non professional furnished renter =CA<23000 € TTC/yr): the operation’s deficit will be transferred to the same nature’s income.

b) LMP status (LMP: professional furnished renter =CA>23000 € TTC /yr): the operation’s deficit will be transferred to the global income.

We are looking at a development in the Alps with a 10 year fixed annual return and they have mentioned this in passing, I am going to look into further but wondered if anyone esle was doing this at the moment.  It seems that the losses can be offset against your tax bill which may make it even more attractive to us.

Panda

[Pickles]

For people who are French resident as you are (IIRC), then yes, these schemes can be very attractive, and you can offset the interest paid on the motgage (not the capital) against the income, to produce a deficit that can then be set off against certain revenues according to the rules that you have identified above (and also IIRC subject to a limit which used to be around 11K€ pa). This therefore reduces your taxable income: this advantage would be available to non-residents. There is also (again IIRC) a provision to offset some of the capital costs against your tax payable (again within certain limits) for non-residents this is usually negated by the provision in French tax law that imposes a minimum tax rate on your taxable income. The agents should be able to provide a simulation of the tax impact for you.

Against all this, however, you need to think about how good this is as an investment in terms of the long-term value of the property. If you can, try and compare the price against second-hand apartments in similar areas - some commentators (eg look at the magazine "la Vie Immobilier" and similar) warn that at the end of the term there is a real risk that you may not get any capital appreciation - it is possible that you may get back less than you paid. Non-residents in particular, who receive fewer tax benefits from this type of scheme, need to be particularly wary. Where the property is more "stand-alone", the return may be more secure: where it is an integral part of a development, the value at the end of the term will be affected by the quality of the management company in place in x years time ...

Pickles

[Panda]

Hi

Thanks for the information pickles, I have requested a simulation from the agent. 

You are right about the future prospects, we have compared a second hand property and we could buy cheaper but not significantly so, the Alps attract ridiculous prices now and our love of ski-ing means that the return coupled with the guaranteed personal usage per year makes it an attractive option as a package. 

I realise there are risks, the property is 4*, they probably all are these days, it's in a place we like and we have every intention of living one day in the Alps and this gives us a foot hold in a market which has grown almost out of reach in recent years.

So, if the tax work in our favour I think we will take the plunge...

[Ian]

Hi Panda,

just wondered how it has all worked out for you?  Best wishes, Ian

[Panda]

Hello Ian

I haven't plunged yet actually, the property is still at planning and I still have a couple of reservations regarding the location.  I'm planning to go over and look.  I do already own a few apartments although not on leaseback so this is entirely new to me.

Panda

[Ian]

Good luck with your decision. Leaseback caught my eye fpr a number of reasons (though I am aware of the downside risk of over paying/being left with a 10 year old property that isn't worth more that when you bought it, surrounded by sparkling new ones).

Do you (or anyone else)know if the mortgages on offer for leasebacks are any different to those for "regular"  property investments? In particular whether the "promised" rental yield is considered security/taken into account or whether greater than usual LTV %s are offered?

[Panda]

Hello

I believe the rental yield is taken into account, it was certainly a factor with the brokers I've spoken to.  The rates offered are the going rates and the LTV could be 100%, in fact they will finance the VAT element which you later get returned by the government if required.

Panda