Working Together in Prosperity

An investment option that has been available for over 20 years has been French Property using the "leaseback plan" so what actually is a leaseback?

A “leaseback” plan is a method where you buy a house or a flat and then grant a company the right to use it for, usually, short-term tourist lettings. This is usually for a fixed period of 9 years but may be longer depending on the property. In return you receive major tax breaks from the French government and a guaranteed inflation linked income for the duration of the contract

The details of the plans vary but, typically, the contract will state that the company pays all of the expenses in relation to the property-rates, water & electricity charges, community fees, repairs and replacements etc. They will also be required to return the property to you in good condition on completion of the lease term.

The contract will also usually provide for you to occupy the property yourself free of charge for a period of perhaps, 2 to 4 weeks per year. If you do not want to do so you can allow others to occupy the property on your behalf or, usually, surrender your right in return for a higher payment from the company that is your tenant.

Only approved companies can offer leaseback schemes and those that do are usually subsidiaries of major French companies of the size and status of British Gas. The guarantee from them is therefore reliable and enforceable.

This is nothing to do with timeshare. The property is yours from day one. It is registered in your name in the French land registry. You are merely allowing someone else to use your property for part of the year in return for a cash payment as with any lease agreement it is simply that your tenant is a corporate tenant who has the option to house any of its clients or staff in the property.

At the end of the lease the property is yours to do with as you please. You can continue to rent it out, use it your self or sell it, possibly to start a new scheme.

Why has Leaseback developed?

The French have more tourists than any other country in the world. The French themselves also often occupy rented property. The government has to make arrangements for those people to have somewhere to stay. In order to do so, and to protect their enormous tourist industry, they therefore give incentives to people prepared to invest in good quality rental property.

Why think of Leaseback?

The government allows you to buy the property free of VAT (or TVA in France !). VAT is normally 20.6% therefore this is a major saving. A £100,000 property will only cost you £80,000.

The guaranteed return will, typically, be 4.5%.  This is after deduction of all the expenses of running the property. This return can in effect, be completely free of French tax.

Mortgage finance is available, in may cases for 95% of the price paid, at about 4.2% fixed rate or 3.8% variable rate.

You can usually use the property yourself for a time, for your holidays, free of any charge. Additional time can often be rented back from the company.

Leasebacks are available in places where there is likely to be considerable property appreciation over the next 9 years or more.

Where is Leaseback available?

Leaseback is only available on new or totally rebuilt property. It is available in many parts of France including Paris , Normandy , Brittany , the Alps & the Monaco area.

Who is leaseback right for?

Anyone who cannot use a home for more than a few weeks per year at the moment, but who might be able to do so in 10 years time.

Anyone who wants to buy a property with substantial amounts of borrowed money in order to leverage his investment to the full.

Anyone who likes the idea of a fixed income property investment in an era of predicted long-term low inflation and low interest rates.

Anyone who chooses an area with the prospect of reasonable growth in property values over the next ten years.

An Example

You buy an apartment in Paris – list price £100,000 including furniture.

The price you will pay will be about £80,000. 

The costs of acquisition (legal fees, notaries fees etc) will be about £2,400.

Your total investment will therefore be £82,400.

If you fund 95% of the price you paid (say £76,000) by mortgage, your monthly repayments, over 10 years, will be about £775. Of this amount £250 will be interest and the rest capital repayments.

These payments can be reduced by taking the mortgage over 15 years (£570 per month) or 20 years (£470 per month).

Your guaranteed income will be, say, £4,000 per annum or £333 per month. All of your interest and a large part of your capital repayments can therefore be covered by the “rent” received. 

This income will be tax-free and, indeed, you will have additional tax allowances of about £5,000 per annum to set against any other income in France

You can use the apartment yourself for three weeks per year.

Multiple Investments?

It is possible to buy Leaseback properties in several locations, so giving your family and friends the possibility of holidays in, say, Paris , Normandy and Monaco at varying times during the year. Such a portfolio can be put together for a capital outlay of about £15,000 and a monthly “topping up” payment of about £450.

At the end of the 9 year period you would have properties which were worth about £250,000 at cost PLUS whatever amount they had grown in value over the 9 year period. It would not be unreasonable to expect a 100% increase in value over this period if the properties were chosen wisely.

Ross Pays is the Chairman of The FAA based in Cyprus. FAA offer advice on wills, tax registration services, home, health and car insurance, investment services and tax planning, including Inheritance Tax Planning, together with full accounting services.

Visit Ross Pays website at www.rosspays.com, Telephone 00 357 25 82 58 76, Fax 00 357 25 33 35 93 or e-mail ross@rosspays.com
Initial consultations are free and no obligation and fee quotations will be provided in advance for all services.