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Service France
Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson LLP in respect of this article. Taxation and property law are complex subjects and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
Q. I want to buy a £250,000 new flat in France as an investment property. I understand that there is VAT on the price.
A. Yes. The French developer will have to include within the price VAT at 19.6%. This means that what you are in fact paying is £209,000 plus French VAT of £41,000, which adds up to £250,000. Reclaiming the VAT is very worthwhile! Incidentally your stamp duty/registration fees are very much reduced because VAT is charged instead.
Q. I understand the only way to get back the VAT is to buy a "leaseback" property in France, which involves renting the flat for 9 years plus to a para hotel company.
A. This is a very common misconception and is wrong. Provided you comply with the French Tax Code's requirements you can recover the VAT on any new build property. Sadly very few English buyers are aware of this and I suspect many who could easily qualify to reclaim the VAT do not do so through ignorance of the fairly complex French VAT laws.
Q. Why didn't the notaire or the developer tell the English buyers about the VAT reclaim?
A. The notaire's job does not extend to giving tax advice. He is generally only involved in the registration of title and is in any event a tax collector for the French Revenue. Also many English buyers use the same notaire as the developer who has no incentive to help the buyer reclaim the VAT, as this will slow down the sale. He will get no thanks from the developer who is an important client. This is a reason why we always advise clients to use a separate notaire, which adds nothing to the fees. French investors will normally have reclaimed the VAT, as more tax information is available to them in France. This also enables them to be more competitive on rental levels as their yields will be higher with the19.6% discount.
Q. What are the French Tax Codes requirements for me to get the VAT back?
A. Broadly the property has to be used for holiday lettings. There are various categories you can come under which are not particularly onerous. You will need to charge tenants VAT at 5.5% on the rents which increases the cost slightly to your tenants who will not be able to recover this VAT. Professional advice is a good idea here.
Q. What paperwork needs to be completed?
A. Several forms need to be completed and the notaire dealing with the matter needs to be aware of the circumstances. Given the amounts of VAT on property transactions expert professional advice is best. The forms can appear confusing and it is essential the correct forms are used to avoid delays and confusion in reclaiming the VAT. You should get the VAT back within 3 months of completion.
Q. How does the above vary from the "leaseback" deals which are widely marketed?
A. Tax wise they are almost identical. The marketed leaseback deals have the advantage that they are packaged usually involving substantial development and holiday companies so you do not have the administrative burden of managing the property and dealing with rentals yourself. You also have the comfort of the rents on a 9 year lease from the holiday company. The DIY route however allows you a much wider selection of new properties (including places which are not traditional holiday destinations), as the packaged leaseback deals are normally only offered on specific buildings usually in popular tourist resorts. With the DIY arrangement you will of course have far more flexibility as to your tenants and rental arrangements.