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Specialist in French Property Law Strap Line
 


Purchasing an existing property

Purchasing a property off-plan

Leaseback purchase

Purchasing building land

 

Leaseback purchase/connected commercial lease

The leaseback investment scheme usually concerns new property bought off-plan, generally apartments, but may also relate to existing property in the course of extensive renovation. This is a purchase in full ownership in the same way as a freehold would be perceived in the UK. This type of purchase follows the same formula as a new-build development however in this instance the purchase comes attached to the creation of a commercial lease for a minimum of nine years duration in favour of an appointed management company. The management company leases the apartment as a furnished property and sub-lets it as tourist accommodation. One of the benefits to the scheme for the investor is that it enables the purchaser to reclaim the TVA (VAT) element of 19.6% of the purchase price. Although certain conditions must be adhered to in every leaseback scheme in order for the system to operate, other conditions as for example those relating to the responsibility for payment of running costs may vary widely. Schemes may provide for the owner to use the property for an agreed number of weeks in every year. Such developments often offer a guaranteed return on an annual basis. it is worthy of note that until the turn of 2007 the TVA 'discount' was amortised over twenty years and thus if a purchaser wished to take possession of the property after the expiration of the first 9 or 11 year lease the balance of the TVA became due. A change in the law in January 2007 resinded this caveat so that it is now possible to dispose of the property after the expiration of the first period of commercial lease and dispose of the property without attracting the repayment of the TVA. It is also worthy of consideration when contemplating a purchase of this type and placing it within a SIPP that the attitude of the revenue in the UK at this time means that purchasers cannot use the property themselves as it must remain a totally commercial investment managed and functioning strictly within a résidence de tourisme as defined by the tax authorities. There are also limitations concerning any sale of the property during the initial lease term. As with any substantial long-term investment there are disadvantages as well as advantages to this type of scheme and it will not be suitable to every situation. Prospective investors in this type of property are strongly advised to take expert advice before committing themselves.

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