French leaseback properties for pensions available to Irish investors for first time

Monday, 21 December 2009 11:40

Irish investors can place French leaseback properties into their pensions for the first time as difficulties in law preventing this kind of investment have been overcome.

They can now be put into various schemes including small self-administered schemes, personal retirement savings accounts and approved retirement funds as well as company, executive and personal pension plans.
This significant new development brings considerable tax advantages to an already secure, long term retirement product and for many Irish investors it will be a welcome alternative to volatile stockmarket investments and increasingly expensive annuities, according to Dublin based Pierre & Vacances Property Investments and the Independent Trustee Company, one of Ireland’s largest pension trustee companies.
Crucially, any income generated from French leaseback is tax free while capital gains tax is not payable in Ireland or France after 15 years. This is in addition to the already attractive tax benefits of French leaseback, such as a pre-financed VAT rebate of up to 19.6% and, in certain cases, French Government subsidies, they said.

In France, leaseback properties have been open to pension investors since the 1960s but differences in the law made it difficult for Irish pensions to invest in them. However, the two companies say that they have managed to overcome this issue and can now open this rapidly growing market to Irish pensions as well.
Investors may even choose to part-finance their leaseback property, which could be a cottage in the latest Center Parcs development, an apartment in Paris or a chalet in the Alpine ski resort of Avoriaz. Mortgage finance is available from a number of French banks. Where bank borrowing is provided, rent can be taken tax free for the majority of the investment term.

Due to the stable cash flow of the model, the loan is paid back by Normal Retirement Age, at which point the rental income becomes the investor’s retirement income through the ARF regime. In effect, the rental income services the loan pre-retirement and the investor post-retirement and should the investor need a lump sum, the property may can be sold, they added.
'Interest in investing in French leaseback property to secure income for retirement has grown exponentially in the current risk averse climate. The fact that there are no management or maintenance hassles and no running or insurance costs offers additional peace of mind,’ explained Niamh Erbek, Business Manager (Ireland), P&V Property Investments.
‘Many investors are between a rock and a hard place right now and have significant capital sums tied up in poorly performing pensions that default into expensive annuity products. They are desperate for secure investment products that generate solid income streams’ he added.

Tommy Nielsen, director, Independent Trustee Company, described it as a highly significant development for Irish investors. ‘A secure, long-term investment vehicle that already has favourable tax incentives has now been bolstered by the tax free structure of the pension. Low risk, highly tax efficient investment products like this that come with the certainty of a long term guaranteed rental income are proving very attractive to a growing number of investors, especially given the volatility of equity markets over the past two years and decreasing annuity rates,’ he said.