The Pinel Act

Since 1 September 2014, prospective real estate investors in France have a new tax-advantaged investment option. Created under the Pinel Act, the new 'Pinel plan' is similar to the previous Scellier and Duflot plans, which it has superseded.

Basic principles

As with its predecessors, the Pinel plan is intended to encourage investment in new housing construction by offering investors a tax reduction of up to €63,000 on their personal income tax.

However, paying less taxes must not be the sole motivation for a real estate investment, which should be considered within an overall framework of wealth diversification. The tax reduction is subject to restrictions and you should seek assistance from a rental property investment professional.

You must keep in mind that you will lose your tax advantage if you fail to comply with your rental obligations.
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Rules

Property requirements

  • The property must be purchased between 1 September 2014 and 31 December 2017 inclusive.
  • Full ownership(1) must be acquired in a newly completed or off-plan housing unit. If purchased off plan, construction must be completed within 30 months after the construction launch date.
  • Buildings must comply with the French government's BBC 2005 or RT2012 energy consumption standards.
  • The price paid per square meter cannot exceed €5,500.
  • The investment cannot exceed €300,000 and no more than two properties can be purchased in a given year.


(1) There are three degrees of property ownership:
1. Full ownership, which entitles the owner to use the property, to receive income from it and to freely dispose of it (i.e. sell or rent it).
2. Bare ownership, which includes the right to dispose of property but not to use it nor receive income from it.
3. Usufruct, which includes the right to use property and receive income from it, but not to dispose of it.

Rental requirements
  • The property must be rented unfurnished for 6, 9 or 12 years.
  • It must be rented as a principal residence within 12 months after construction is completed.
  • Property purchased as of 1 January 2015 can be rented to an ascendant or descendant (provided the investor does not claim this person as a dependent).
  • Renters must not exceed the income limit set by the French government each year.
  • There is also a cap on rent that depends on where the property is located.

More information on renter income and rent caps is available on the service-public.fr website.

Tax advantages
  • The Pinel plan enables tax reductions over rental periods of 6, 9 and 12 years. VAT cannot be recovered.
  • The amount of the tax reduction is a percentage of the total investment and depends on how long the investor agrees to rent his or her property. It is:
    • 12% for a 6-year commitment
    • 18 % for a 9-year commitment
    • 21 % for a 12-year commitment.
  • No tax reduction will be allowed if rental requirements are not observed
  • The tax reduction is included in the overall maximum income tax reduction allowed under tax breaks in France (€10,000 in 2016).
  • The tax reduction is not a tax credit - if it exceeds the amount of tax owed the excess cannot be claimed the following year.

Exemples

Example 1 :

An apartment is purchased for €150,000 and the rental commitment is six years: The annual tax reduction is (€150,000 x 12%) / 6 = €3,000 a year for six years, for a total reduction of €18,000.

Example 2 :

An apartment is purchased for €200,000 and the rental commitment is nine years: The annual tax reduction is (€200,000 x 18%) / 9 = €4,000 a year, for a total reduction of €36,000.

Example 3 :

A house is purchased for €300,000 and the rental commitment is twelve years: The annual tax reduction is €6,000/year during the 9 first years, then €3,000/year during the last 3 years, for a total reduction of €63,000.

A tailored solution

Would you like to take advantage of the Pinel Act? A Barclays advisor can help you determine whether a Pinel investment is a good fit with your wealth management strategy. If so, he or she can point you in the direction of our subsidiary Barclays Diversification SA, whose experts can show you properties that match your needs and assist you with purchasing.

LEGAL INFORMATION AND TERMS

  • BARCLAYS DIVERSIFICATION SA is a French joint-stock company with capital of €225,000 having its registered office at 183 avenue Daumesnil - 75012 Paris and registered in the Paris trade register under No. B 999 990 542. The company is a registered insurance broker (Orias No. 11 063 689 - www.orias.fr) and real estate agent (card No. T-12872 issued in Paris) and is backed by a financial guarantee from GALIAN - 89 rue la Boétie - 75008 Paris.