The reduced VAT rate for new real estate purchases in France, typically set at 5.5%, is generally intended for residents in France. It is designed to promote homeownership and support individuals and families in acquiring their primary residence within the country. To qualify for this reduced rate, individuals or households typically need to meet specific income criteria and other eligibility requirements set by the French government. So, if you ever thought of moving to France and making it your new home country, this is a good reason. However, the 5% VAT on new construction is only applicable if you lived here before you signed the contract. A good strategy would be to rent something first and then move into a new construction apartment. Your new apartment will be 15% less expensive. This 5% rule applies to specific projects, so ask us what the conditions are.
Understanding VAT Rates for New Constructions
While certain conditions must be met, it is possible to become a homeowner in the realm of new real estate at a reduced VAT rate, currently set at 5.5%, equating to significant savings of 14.5%. For instance, a new apartment priced at €250,000 translates to a VAT reduction from €50,000 at the standard rate to €13,750 with the reduced rate, which can make a substantial difference in financing or affording a more spacious property.
Eligibility for the 5.5% Reduced VAT Rate in 2023
Since 2006, the General Tax Code has authorized a reduced VAT rate 5.5% on the mainland and 2.10% in Overseas Departments (DOM) for the initial purchase of a new property intended as the primary residence for households that meet income criteria. The income threshold to qualify for this reduced VAT, whether for acquiring a new apartment or a new house, aligns with that of the Social Rental Loan (PLS), plus an additional 11%. For example, the income threshold for reduced VAT in 2023 is over €54,000 annually for a couple in the Paris region and €61,200 for a family of four in other regions.
Choosing the Right Location for a 5.5% VAT Property
The 5.5% VAT scheme aims to facilitate homeownership while revitalizing specific neighbourhoods. Therefore, not all developments are eligible. New projects benefiting from this reduced VAT rate are typically located in areas governed by the National Agency for Urban Renewal (ANRU), ANRU zones, and since 2015, in nearly 1,500 Priority Neighborhoods for the City (QPV), along with a 500-meter radius for building permits filed since January 1, 2017. This approach promotes social diversity.
Picture courtesy of PlusLife Health, Sydney Australia
Combining Assistance Programs for New Home Purchases
To further reduce the cost of your new real estate investment, it’s essential to recognize that acquiring a property with reduced VAT allows for the combination of support from other programs. If you qualify for a new apartment with reduced VAT, you should also be eligible for the Zero-Interest Loan (PTZ). This program is the primary initiative supporting homeownership and is designed for first-time buyers who have not owned their primary residence in the past two years. It provides an interest-free loan, covering 20% or 40% of the capped acquisition price, up to €138,000, based on geographical location and household composition.
Purchasing a new property with reduced VAT also complements the Accession Loan from Action Housing, formerly known as the 1% Housing program, available to company employees with over ten staff members. Contributions from employers to the Interprofessional Housing Fund (CIL) enable the granting of low-interest real estate loans, currently set at 0.5%, for amounts up to €40,000. This reduced-interest credit can account for up to 40% of the acquisition budget and can be repaid over 25 years.
Another program that can be combined with the 5.5% VAT reduction is the PAS loan for Social Accession Loan, aimed at low-income households, subject to income criteria that also vary depending on the property’s location and the family’s situation.
Handling Reduced VAT in the Event of Resale
Various life events, such as job-related relocations, childbirth, or divorce, are considered by tax authorities in the event of property resale. In any case, a reduction is always possible. If the property is resold within the first ten years of ownership, the buyer must repay a portion of the reduced VAT, equivalent to 1/10th for each year of ownership, starting from the first year of acquisition.
No Repayment Required for 5.50% VAT: Qualifying Circumstances
On the other hand, there is no requirement for repayment in the event of the buyer’s or a household member’s death, professional relocation involving a commute exceeding 70 km between the new workplace and the residence, unemployment lasting over one year, issuance of a disability card, divorce, or dissolution of a civil partnership (PACS). Additionally, more recent circumstances, such as marriage, PACS signing, the birth of a child, or the issuance of a disability card to a dependent child, also exempt the property from repayment.
Renting an Apartment Purchased with Reduced VAT
The same previously mentioned conditions apply if you intend to rent out an apartment purchased with reduced VAT. The reduced VAT rate remains applicable in the following cases if you decide to rent out the property in the event of the buyer’s or a household member’s death, the death of a descendant, professional relocation beyond 70 km, unemployment lasting more than twelve months, marriage or PACS signing, divorce, dissolution of a PACS, or the birth of a child. These conditions allow for renting a property purchased with reduced VAT without the need for repayment.
Are you interested in buying new construction on the French Riviera ? Contact us for a first selection within your budget.
When you are not planning to become a French resident but you would like to invest in new constructions as a rental investment? More about claiming back the VAT as a para hotelier service when buying new construction.
