It is possible to reclaim the TVA (VAT) on a new build property. Many people have heard about this and ask us how to go about it. The short answer is “it’s complicated”. In this short article we’ll try and add a little more information than that!
To start with it would be better to think of a property purchased in this way as an “investment”, an investment that will provide a rental income and may provide capital growth. It would not work if the property was being bought as a “holiday home”.
As an example I will use Chalet La Lyre and Chalet La Couronne Boréale in Samoëns. These two “off plan” properties are close to the centre of Samoëns and would provide good accommodation and location for a rental business; they could be used as self-catering or catered accommodation.
So Chalet La Lyre and Chalet Eridan together are for sale for together for a discounted price of 1,250,000 Euros (individually they are priced at 870,000 Euros and 480,000 Euros). The TVA component of this is 205,000 Euros.
- The purchaser would rent it a TVA registered rental company (which could be run by anyone – including the purchaser).
- They rental company leases the property from the owner on an annual contract, they must propose minimum services – 3 of 4 of the following: linen/breakfast/concierge/cleaning.
- The owner reclaims 19.6% of the purchase price = 205,000 Euros, this TVA is repaid in a lump sum after 3 months of rental has been received by the management company.
- This rental agreement would have to carry on for 9 years otherwise you’ll have to pay back the pro rata proportion of the TVA. So if after 5 years the purchaser decides to sell, the French authorities would want 4/9 x 205,000 = 91,000 Euros returned to them
So the initial investment for the purchaser would be 1,045,000 Euros, the yearly rental would be an estimated (30,000+15,000) 45,000 Euros. Providing an annual return of 4.3%. In these circumstances the running costs for the property would be paid by the renter so the GROSS and NET annual return would be almost the same.
Some further notes.
- There are purchase costs to take into account. Notaires fees and stamp duty, these are discounted on new builds! They amount to 2.5% in total.
- If the purchaser waits until after 5 years to sell the properties he will avoid having to pay Capitol Gains Tax.
- Before signing anything the whole project would need to be discussed with a qualified French accountant. We can suggest SAREG in Les Gets.
Posted by Gareth 
