English
FrançaisDear Seamus
I have found your site extremely useful and informative.
I am in the process of potentially buying a leaseback but I have found the
position regarding the VAT situation and rent quite confusing. I gather I
would be paid rent, in my case 4% of the capital price of the property (less
VAT) each year. This amount would then be subject to 5.5% VAT. I
presume the French accountant will sort this out to some extent, I just
have to complete a declaration. But, if I try and understand it, I get the
rent without VAT added on & I presume the accountant pays the 5.5%
(that I never get) back to the French Tax service. If this is the case then
that seems relatively straight forward.
However, there is also mention of "rent in kind". This refers to the time I
spend in the apartment. Obviously, the developer does not get rent and
so I get less from them because a prorata deduction is made from my
starting 4%. Easy so far. But the lease contract goes on to say that this
represents a rent-in-kind which seems also to be subject to VAT. "This
can be set against" the VAT involved in the Cash rent that the developer
pays me. At this point I get lost.
Clearly this VAT and Rent thing is a basic and recurring feature of
leasebacks but I am struggling to find anyone who can enlighten me as to
what it really means and what actually happens
i'd be grateful if Seamus or somebody well-used to the system could give
me a better clue.
Thanks
Ian
Seamus, Thanks for your prompt reply.
I'm not perhaps that bright, so I'm afraid I'm still in the dark! The bit I'm
struggling with is where you refer to 'value'.
"The "rent in kind" value is added on to your cash rent up to the invoice
amount. If the value is not enough then you will have to pay more
yourself."
When I use the flat, the management company loses income and this is
passed onto me as decreased 'cash rent'. They ascribe a notional rent to
this time I use it (80% of the public price).
If I copy an exerpt of the lease contract it may give you the information
you need:
5.2 – Rent In Kind
A. - Definition of rent in kind
In addition to rent in cash, there shall also be rent in kind, which consists
in providing the LESSOR with the occupancy rights indicated at the
beginning of this agreement. Stays shall take place in the LESSOR’s
apartment or in an apartment with the same characteristics and in
accordance with the specifications of Article 6.
B. - Assessment of rent in kind
The amount of this fraction of rent, excluding VAT, shall be evaluated by
allocating to each of the basis periods made available to the LESSOR, the
VAT-exclusive rate equivalent to 80% of the public price as applied each
year by the LESSEE.
C. - Revision of rent in kind
By mutual agreement between the LESSEE and the LESSOR, it is expressly
stipulated that revision of the rent in kind resulting from a change in the
public rate shall substitute an annual fixed revision of the said rent in
kind for the entire term of the lease.
5.3 - Specific Terms
The LESSOR undertakes to issue a receipt for the total annual rent bill
(rent in cash + rent in kind) which shall be drawn up on his behalf by the
LESSEE and to accept the annual bill relating to the occupancy rights. VAT
shall be added to these bills at the rate in force at the time; these bills
may be offset against each other.
Presumably the VAT I could receive as part of the 'Cash rent' can be offset
against the VAT that applies to the notional rent or 'rent in kind'
resulting from me using the flat. If there is an imbalance between the
two, then I end up paying the excess VAT. However, should the VAT on
the rent-in-kind be more, then would I get VAT back? This may be
possible as the management company, SODEREV (part of Lagrange), allow
8 wks owner-occupancy per year.
Apologies for taking up space on your site, but I guess this may be of
interest to other potential buyers.
Ian