TVA on a restoration project

[trevour]

I found myself in discussion with friends recently, who had had a meeting with their Notaire regarding the 'restoration of a ruin'. Their project not mine. 

It was understood that:

• if a restored property ie. one that commenced as uninhabitable ( not a renovated property - habitable but with improvements) is sold within 5 years  TVA @19.6% is assessed on the sale price. The 5 years are deemed to commence from a dated 'completion of works' certificate issued by the Marie. This is fully payable in addition to any  'plus value' should the property be a maison secondaire (less the value of the TVA of paid factures from registered artisans/companies for the cost of the work undertaken) 
• the TVA on the sale  is not applicable after 5 years of ownership ( but the TVA on the factures can still be claimed)
• 'plus value' on a maison secondaire reduces by 10% of the deemed 'plus-value' ( depending on tax residency) per year after the 5 years of ownership.

 Have they understood correctly? Does anyone have an experience or knowledge of this piece of legislation? 

Many thanks.

[Nick Trollope]

You have the basics correct, but it by no means the whole picture.

[quote user="trevour"]

• if a restored property ie. one that commenced as uninhabitable ( not a renovated property - habitable but with improvements) is sold within 5 years  TVA @19.6% is assessed on the sale price. The 5 years are deemed to commence from a dated 'completion of works' certificate issued by the Marie. This is fully payable in addition to any  'plus value' should the property be a maison secondaire (less the value of the TVA of paid factures from registered artisans/companies for the cost of the work undertaken) 

[/quote]

It is 2 years, and this applies to any "new" property. The definition of new where it applies to renovations is a bit muddy.

[quote user="trevour"]

• ( but the TVA on the factures can still be claimed)

[/quote]

Don't understand this - claimed by whom? Noone (other than a TVA-registered person/organisation can reclaim TVA and then not on their own property). It isn't like the UK, where non-VAT-registered individuals can rclaim certain VAT payments on construction.

[quote user="trevour"]

• 'plus value' on a maison secondaire reduces by 10% of the deemed 'plus-value' ( depending on tax residency) per year after the 5 years of ownership.

[/quote]

True, but this has nothing to do with TVA.

 

The more significant TVA issue where renovations are concerned is the actual rate that is charged. Most "new" builds or total renovations are chargeable at 19.6% - non-recoverable.

The TVA/plus value rules surrounding renovation are very complex. If they are serious (ly worried or whatever), they should consult a Notaire or accountant.

 

[BJSLIV]

I think you two are slightly talking at cross purposes.

I think the original poster is talking about the imposition of  VAT on the sale of new-build properties. This liability does indeed run for five years from the date at which completion is notified.

Nick is talking about qualifying for reduced rate VAT for additional work done on new-build properties immediately after completion . He is correct in that any work done within two years of completion must be charged at the higher rate.

So far so simple.

The question of whether an abandoned property will qualify for lower rate VAT on new work, or whether it's sale will attract VAT on the profits is far more complicated.

If the work is a conversion of , say , a barn then then the answer is almost certainly that higher rate VAT will be charged on the work, and VAT deducted from the profit.

However if its simply a question of bringing back to life an existing house then you might avoid VAT on the profit AND qualify for lower rate VAT on the work.

As Nick says the detail of whether or not work qualifies for the lower rate is immensely complicated and is broadly determined by the percentage of the structure that is to be modernised. A French architect should be able to advise. He will also be able to advise as to the likelihood that the project would attract VAT on the sale.

The good news is that if you are liable to VAT on the profit, though you will automatically be liable to higher rate VAT on the work, it doesn't really matter because as you say any VAT paid to artisans will be deducted from your own liability to pay tax on the profit.