French leaseback property, also known as LMNP, for lou meubl non-professionel, was introduced in the early 1980’s by the French government to increase the quantity of holiday accommodation available.
French leaseback investment property
French leaseback property is principally bought for investment purposes and is a relatively low-risk, hassle-free, long-term, steady rental income investment that receives substantial tax benefits. Put simply, it is a guaranteed rental income scheme.
Leaseback property, which is freehold, is leased back’ to a pre-selected property management company for a fixed term, usually between nine and 11 years, but which can extend to 18 years from inception. The management company furnishes and lets the property, providing a guaranteed rental income. The guaranteed rental income tends to range between 2.5% and 6% per year depending on the property, its location and whether or not you will be taking holidays in it. Different management companies offer different rental incomes.
Buying property in France
When buying French leaseback property it is important to check the contract to ascertain the amount of personal usage allowable per year, as this can vary.
At the end of the initial fixed term and depending on the contract, you can either: exit the lease or renew it with the management company. At this point you should be able to negotiate your rents upwards. It is very important that you check the terms of the contract and the reputation of the management company.
Whilst capital appreciation can occur, leaseback should principally be viewed as a means for receiving a guaranteed rental income (yield).
French leaseback property tax advantages
French leaseback property attracts significant tax advantages. Under the terms of the scheme, leaseback property qualifies for a 19.6% VAT rebate, for example, if the price of your leaseback property is 100,000, the VAT saving means that you only pay 83,612. Additionally you can benefit from not having to pay any capital gains tax if you keep your property for 15 years.
Another major benefit for investors who do not take any personal usage is the possibility of it being placed within a SIPP (Self Invested Personal Pension). Whilst it is dependent on the SIPP manager whether or not they will accept the property, placing property within a SIPP attracts major tax advantages. See our SIPP property section for a further explanation of the associated tax benefits.
