RENTAL INVESTMENT: TAKE ADVANTAGE OF THE PINEL SCHEME
Are you a resident in France intending to invest in rental property to plan for your retirement or build up a property portfolio? Are you paying more than €2,500 in income tax per year? The Pinel scheme is made for you. Let’s take stock.
What is the Pinel scheme?
Pinel is an income tax reduction scheme for buy-to-let landlords. The state offers a tax break to investors with the aim of supporting the construction industry in France, whilst allowing certain households to access affordable rented housing.
An income tax break is given to individuals who purchase and let a new property in certain geographical areas and under certain conditions. The former Minister, Sylvia Pinel, is behind this scheme which entered into force in 2014. The scheme was extended to 31 December 2022, and will continue to apply to investments made in 2023 and 2024 with a smaller tax reduction.
Which property investments are affected by the “Pinel” scheme?The Pinel scheme is subject to various parameters and conditions, both in terms of the property and the tenant and their income.
In terms of the property, the tax reduction relates to the acquisition of a new build or off- plan apartment or one which is in an existing complex provided it undergoes renovation work for the purpose of returning it to a new condition subject to certain conditions.
An energy efficiency rating is required.
In terms of the tenant, the property must be let unfurnished, as a primary residence, and the tenant’s income must be below the ceiling published in the French General Taxation Code, in order to ensure the homes in question go to low-income households.
Rentals are subject to the rent caps published in the decree. For 2021, rent caps and tenant income criteria were announced by the tax authorities in a tax memorandum dated 7 February 2020.
The property can be rented to a direct ascendant or descendant of the owner, provided that they do not belong to the same tax household and the rent caps and tenant income criteria are met. The property must be rented out no later than one year following completion or acquisition.
The owner chooses and commits to an initial rental term of either 6 or 9 years which may be extended to 12 years.
Is property on the Côte d’Azur eligible?The tax break is reserved for properties located in areas with an imbalance between housing supply and demand. The only areas of the country that are eligible are zones A, A bis and B1.
The Côte d’Azur is located in zone A. In this zone, for 2021, monthly rent per m², not including charges, is capped at €13.04.
How much is the “Pinel” tax break?The “Pinel” tax break is calculated according to the net cost price of the property including all buying fees. The tax break is spread across the rental term. To calculate it, take the net cost price of the property and apply a percentage based on the length of the rental term.
The tax reduction rate is:
-12% for a 6-year term
-18% for a 9-year term
-21% for a 12-year term
For each investor, the “Pinel” tax reduction is limited to 2 properties per year, capped at €300,000 overall and €5,500 per m2 of usable ﬂoor area.