I am currently mulling over the idea of investing some money in property in France, and am looking at doing this on a leaseback basis. On the face of it, it looks like a reasonably effective idea - buy the property, immediately lease it back to the management company, who then maintain it, guarantee a rental income etc.

I was wondering if anybody here had any experience of doing this, and especially what kind of tax impact it has in Switzerland. Essentially it would involve having a French mortgage, property located there, plus a rental income.

I'm not looking for detailed financial advice here, just wondering if anybody had done anything similar and what their experiences were...

Ed,
Are you sure the management company "guarantee" a rental income? I rent my property in Switzerland; and use a management company to ensure it is maintained, no tenant, no income, no guarantee.
On the plus side as long as I have a good tenant it is a good return on the capital invested.
On the negative side it is very difficult to find a good company to effectively manage your property; with the one I am using for example doing little more then acting as a directory service for the tenant for every little complaint; tradesmen who visit the property know it is being rented and find work/bill to that agenda.
You need to find a property in the right place, the right size, the right age and the right tenants and get it managed my the good company.

If you have the money I would suggest you invest in property in Switzerland, not in France.

Feel free to send me a PM if you have more questions on this.

Thanks for the quick reply.

My understanding of the system so far (I have only just started looking into it), is that the leaseback system is very common and long-established in France, with VAT incentives offered by the governement in order to stimulate the market.

It seems that the system is a little different to what you describe, in that it is often specifically aimed at properties in holiday apartment developments, where a holiday management company sells the property and the buyer then leases it back to them immediately. The conditions of the agreement then mean that the holiday management company are responsible for guaranteeing a certain percentage of the value per year as rental income (through finding tenants, running the development etc.) amongst other things.

The advantage for the management company is that they free up capital, the advantage for the buyer is the possibility of buying at lower than market rates due to the incentives offered by the government.

There's one overview (among many) here.

Ed,
This sounds like timeshares to me; an area that a lot of people have lost a lot of money in. Here some links to see the other side of the coin.

http://www.ftc.gov/bcp/edu/pubs/cons...mes/rea15.shtm

Some very good advise here, one of the golden rules.

Get a handle on all the obligations and benefits of the timeshare or vacation plan purchase, leaseback different name, same idea. Is everything the salesperson promises written into the contract? If not, walk away from the sale.
Mark

Interesting reading, thanks.

I'm also suspicious about how similar to timeshare it sounds. The only difference I can see is that with leaseback you own the freehold and at the end of the contract the property remains yours. My, admittedly limited understanding so far, of timeshare is that this is not the case.

The other attraction of this over timeshare, in France at least, is you get the VAT back from the government, which at 19.6% is not an insignificant sum.

However I'm still far from convinced and need to dig deeper...

Capital gains tax on sale of French property??

Leasebacks are fundamentally different from timeshares. With a timeshare you generally "own" a property with 25 other people in return for which you get your two weeks a year allocated for your personal use. The purpose and structure of owning is different from a leaseback.

Leasebacks are effectively a purchase from a development company and immediate lease back to a holiday company which may or may not be in the same group. You have full ownership rights over the entrie property, but have leased it to another party to use.

The lease is usually for 9 years plus a leaseholders option of another 9. The lease is a fully written legal document outlining the lease length and payment terms. The leaseholder is required to return the property back to you after the 18 years in the same condition in which they took it, although practically speaking this will be French for the "same condition", rather than Swiss!!

Income from the property can be two-fold: a percentage return (usually index linked so that the return increases commensurate with the property value or some other index), and also with a bonus of a couple of weeks a year (out of season though). With the big leaseback providers you can also get the choice of swapping your bonus weeks in your place with another one of their complexes, so you can have the choice of a wider range of "bonuses".

Beacuse the leaseback is for so long (typically 18 years) it's a long term investment only. Yes, the French Government give you the VAT back so it's possible to buy a place with very little down, but if you need to sell the place for whatever reason before the 18 years is up you will need to repay a portion of the VAT claim. Also, leaseback properties tend to be more expensive per sq foot than other similar properties.

You'll need to register with the French tax authorities and pay all taxes there, but as with any property investment your interest on gearing can offset any income. This should then be declared on your Swiss return (if you need to make one) and you should get an offset for any French tax paid through the normal double taxation treaty.

As with any investment, do your sums before committing. It's a long term thing so be sure you can tie your money up for that long. Different leasebacks offer different terms and returns so ensure the numbers make sense. If the principal of leaseback still sounds good, then investigate further with the larger companies as you want to be sure they will still be around in 18 years (not that you will lose the property - you retain ownership at all times - but if you lose income it may disrupt your planning). Larger comapnies have more choice of leasebacks and potentitla places to visit for your bonus as well. Pierre et Vacances and Odalys are two of the larger providers, check out some of their schemes for further info.

Thanks a lot, that generally tallies with what I've been reading so far. Nice to see it confirmed by third party.

Just been doing some more reading - it seems CGT is payable at 16%. However after 5 years you are allowed to reduce the amount of gain subject to tax, by 10% up to the 15th year when there will be no capital gain subject to tax.

Ed,

It is important to think about the cost to maintenance and breakages; its is not insignificant. If you buy property in Switzerland they budget 10% of the cost for maintenance; every year... ok perhaps you dont need that much, but...

There is important link Ed between the income and the cost of labour; the costs labour of maintenance will be the same if you need to get a glazer in to fix a broken window in a house or a flat. The major difference your income from the rental of that property. As percentage it will cost you more if you have a flat than a house, that and the fact that you will be employing somebody else to manage it; they dont care if you make a loss; they will still collect their fee.

Factor that into your equations. Go for 10% of the price as the swiss relators do; see if it still looks good.

To be honest, I'm not far enough down the road to have any numbers to factor the 10% into, I'm still only exploring the general concept at this stage. As such, I can't say if it still looks good - I haven't yet decided if it looks good at all.

That said, research so far shows that the property maintenance in the French contracts is normally taken on by the lessee, so I don't think that particular cost would be a factor. However there are some government taxes which are borne by the lessor, similar to council tax in the UK, which would need to be taken into account.


EDIT: By the way, I just noticed I earned a groan from eyebeebe for my second post on this thread. If you're still reading, any chance you could enlighten me as to why you found it out of order?

I've removed the groan and replied to your PM. I inadvertently clicked the groan button whilst surfing on my phone and didn't realise until you brought it to my attention. Sorry about that.

No problem, thanks for deleting it.