6/ Major tax allowances

The rental income from a French leaseback property is generally referred to as "tax free", which is what makes the scheme so popular with the French and means that the income can be used almost in its entirety to repay the mortgage - making the purchase self-financing - or just about.

The leaseback scheme offers multiple tax incentives, of which the initial refund of the 19.6% VAT on the property is the first. The tax allowances are the same for residents and non-residents, which is why the scheme is also popular with foreign investors.

Any financial income received in France is taxable whether or not you are a French resident and the owner of a leaseback property with a regular yearly income in France is liable to pay tax in France on the income received in France.

The leaseback company will appoint a chartered accountant to file your yearly income tax return and this will cost you about 300 - 400 euros per annum.

The year of purchase, the accountant proceeds to obtain the VAT refund and even if you have not paid the VAT upfront when purchasing your leaseback, as is sometimes the case, the accountant has to undertake the procedure on behalf of the developer. Thereafter your accountant will file your yearly VAT return (5.5% on rental income) and your French income tax return.

All your property-related expenses including the accountant's fees, property tax, acquisition costs (known as notary fees), an annual percentage for property devaluation and interest paid on the mortgage are deductible from your rental income - bringing income tax down to nothing, at least for the first 20 years.

There are two taxes for property owners in France, the "taxe d'habitation" (property tax for the municipality or council tax) and the "taxe foncière" (land owner's tax). The first is paid by the management company because you will not be living in your property (this tax is paid by the tenant i.e. the management company), the second, which is to be paid by you, usually amounts to about one month's rental income and is ultimately included in your deductible expenses (see above). You are exempt of the taxe foncière for the first two years in most cases (law on new-build in France).

Investors will be encouraged by their accountant to opt for the "regime réel simplifié".

Capital gains tax:
If you sell the property before the first 15 years, as a non-French resident living in the EU you pay 16% tax of the net profit when you sell (25% for residents).

However, you can deduct your acquisition costs (Notary fees), selling costs (agency fees), loan interest and the cost of any major improvements made to the property. There is an erosion of monetary value facture applied to allow for inflation, which reduces the figure further. Finally, after the first five years, each year you hold the property there is 10% reduction of CGT liability. Therefore if you hold it for 15 years, you will be totally exempt of CGT.