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. Taxation and law are complex subjects and the information herein is intended only for general information. Nothing herein constitutes financial advice.

The fact you can purchase French leaseback properties which are part of hotel complexes using your self-invested personal pension is starting to receive considerable publicity. France’s largest property and leisure developer, Pierre & Vacances, is actively promoting leaseback properties for SIPPs including apartments in Les Arcs and Courchevel. This is proving very popular as the leaseback property is ideal as a low risk hands off pension investment for the investor who is looking for solid long term capital gains.

There are however other possibilities. One is to sell an existing leaseback property to your pension scheme thereby releasing the cash from the pension scheme for any purpose you wish. In other words, if you have say a leaseback property worth £150,000 and have a similar amount in your pension plan you can sell the leaseback property to the pension plan. The leaseback property then becomes an asset of the pension plan and the £150,000 is then paid out to you by the pension fund trustees. The price must be the open market value of the leaseback which should be easy to ascertain from other similar sales in the area. Depending on the way this is structured it is possible to carry the transaction out avoiding any charge to French stamp duty and with notaire’s fees of about €1,200. It is of course essential that the structure is set up properly and that the SIPP provider is willing to accept French property as an asset. If your existing pension provider is not willing to do this then it is a relatively simple matter to transfer your pension to a SIPP provider who is willing to do this. The costs associated with this should be very modest. If you are considering opening a new SIPP then it is worth making sure that the SIPP provider is able to buy French commercial property including leasebacks as currently not all offer this.

Another possibility is to make a contribution “in specie” to your SIPP. If you have a leaseback property worth say £150,000 in your own name and have earnings of say £150,000 per annum you can transfer the leaseback property into your pension plan and use it as a pension contribution thereby exempting yourself from income tax on your £150,000 salary. In this situation you would have a year with no UK income tax to pay. This is because the leaseback property is treated as a contribution to your pension plan and under the current rules you can contribute up to the total gross amount of your annual salary or £215,000 whichever is the smaller. Again, it is possible to do this with notaire’s fees of around £1,200 and relatively low costs. It is attractive for high earners who wish to shield their salary from income tax.

It is also possible in both the above cases to keep existing mortgages in place though the amount of the contribution will be the equity in the property not the total value of the property. In other words, if the property is worth £150,000 and you have a £50,000 mortgage then the net contribution for pension purposes which can be set off against your income tax for the relevant year will be £100,000.

The transfer of the leaseback property into your pension fund will be a disposal for capital gains tax purposes. This should be treated as a business asset and in most cases the full taper relief will apply which will mean that capital gains tax will only be payable at 10% after the usual exemptions. In many cases this means that little or no UK capital gains tax will be paid when the leaseback is put into the SIPP. Sykes Anderson has carried out quite a number of these transactions now and they are becoming fairly routine.

In all the above cases it is possible to add gearing to your investment. The SIPP can borrow up to half the value of the fund. In other words if your SIPP fund has £100,000 in it then you can borrow £50,000 and the SIPP can buy the property for £150,000. In this case there will be additional notaire’s fees. Sykes Anderson has developed a SIPP calculator which allows you to work out how much you can gear up a leaseback investment so that the property can be purchased by your SIPP without having to make any contributions yourself to the mortgage. This can be found at www.sykesanderson.com. Please note that in all the above instances there is no loss of the VAT which you reclaimed when you purchased the property on the transfer into the SIPP.