How to buy French leaseback properties using your pension money
David Anderson of Sykes Anderson LLP English solicitors and Chartered Tax Advisers and leading expert on French taxation discusses how Republic of Ireland residents can use their Irish pension money to buy French leaseback property.
Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. Taxation and law are complex subjects and the information herein is intended only for general information. Nothing herein constitutes financial advice.
Q: I have heard that UK residents can transfer their pension funds into Self Invested Personal Pension Plans called SIPPs and use them to buy commercial property including French leaseback property. Is this true?
A: Yes. This has been the case for many years though the rules have recently been relaxed in the UK to allow a wider class of assets to be bought.
Q: So are you saying a UK SIPP pension fund could buy a leaseback flat in France? I thought you said only commercial property could go into a SIPP.
A: The leaseback flats in France are usually part of hotels or parahotels and these are included within the definition of “commercial property”. The SIPP buys the flat and leases it back on a French commercial lease to a management company for anything from 9 to 20 years for hotel use. The management company will have to pay the rent to the SIPP pension fund. There is French VAT at 19.6% on new build properties but because this is a commercial transaction in France you can recover the French VAT which is paid back to the pension fund.
Q: How is this relevant to ROI residents?
A: At the moment it is not usually possible for ROI residents to use their pension funds to buy French leaseback properties or indeed French commercial land including farmland. However, in April 2006 The UK revoked the UK-ROI agreement dealing with the transfer of pensions and the position is now regulated by European law which simplifies the transfer. It is now relatively straightforward to transfer certain types of pension to a UK SIPP and then buy a French leaseback through the UK SIPP.
Q: How easy is this to do?
A: Very. You simply contact the UK SIPP provider and ask them to arrange for a transfer of the Irish pension money to the UK. The administrative requirements may vary from case to case and you should always seek independent financial advice as to the benefits of the transfer.
Q : Is this permitted in the ROI for all pension funds?
A: Subject to a number of conditions, it is permitted to transfer funds held in occupational pension schemes or Personal Retirement Savings Accounts to overseas pensions, including SIPPS. It is not permitted to transfer Retirement Annuity Contracts overseas however it may in some circumstances be possible to transfer funds held in a RAC to a PRSA and then transfer the funds overseas.
Q: Does the money have to be changed into sterling?
A: No it can all be done in Euros so you lose nothing in exchange costs when you buy in France.
Q: Is there any way I could buy a non leaseback French property, say, a flat in Paris?
A: Not using a SIPP because the property must be commercial. However, there are other avenues which we can discuss with you. These are only suitable for bigger funds because of the costs and complexity involved.
Q: What happens if I use the property myself, say, by renting 2 weeks of the leaseback for myself?
A: UK residents are subject to benefit in kind charge unless they pay a market rent for the property. The UK would probably not, however tax you to this charge if you were ROI resident because you would not be within the scope of UK tax. You would need to check the ROI position to decide whether you need to put this down on your ROI income tax return.
Q: I have an existing French leaseback could I sell it to my SIPP fund and take the money out of my pension fund?
A: Yes, provided it is done at market value. There will be no French taxes to pay and notaires fees will be under €350. There may be Irish capital gains tax as you will be selling the property to your SIPP. You will need advice from an ROI adviser in this respect.
Q: How is the rent and capital gains taxed in France?
A: The structure we use results in very little income tax if any being paid in France and in most cases no French Capital Gains Tax. No tax will be payable in the UK as SIPPs are tax exempt vehicles here. You will need to seek advice from an ROI adviser as to the taxation of the income and capital gains by the ROI Revenue.
To see a video interview with David Anderson regarding SIPPs please click here.