SAREG talk financial planning in the Alps

Debbie Bradbury of chartered accountancy firm, SAREG, explains why prudent financial planning can deliver a chalet investment that pays its way

With Alpine resorts in France a perennial winter draw for powder hounds of all persuasions and with increasing numbers of visitors seeking bespoke accommodation packages; the catered chalet sector of the residential tourism market is booming. But with steep property prices and salary costs to manage those holiday lets appreciably higher than in many other European vacation hotspots – can a chalet purchase truly be considered a savvy investment? The short answer is yes – but only if certain financial aspects are taken into account in the setting up and running of such a business.

VAT REIMBURSEMENT
According to the type of property purchased and to strict criteria related to the type of activity run from the property, it may be possible to claim back the VAT paid on purchase (20%). Those essentials include:

The property itself must be either be - purchased off-plan or a self-build deriving from the purchase of a plot of land; the rental activity must be catered (not self-catered), providing a minimum of 3 services out of the following: reception; daily cleaning; provision and changing of sheets; and breakfast.

The property must be available for rental, either by signing a commercial lease with a tour operator providing these services, OR by provision of these services personally.

The catered rental activity must be in place for 20 years. Should the property be sold within that 20-year period, or if the services are no longer provided, then the owner will be obliged to repay the French tax authorities the proportion of VAT related to the remaining number of years (e.g. after 11 years, 9/20ths of the initial VAT would need to be repaid to the French government).

CAPITAL GAINS TAX EXEMPTION
It’s possible to arrange the correct structure for purchase and rental so that the investor is classed as the person running a professional activity from the property. Under certain conditions - the future property sale would then be exempt from Capital Gains Tax. The owner does however need to be personally involved in running the business.

The property would also need to have been owned and used professionally for a minimum of 5 years. The turnover of the business would need to be less than 252,000 Euros (with less than 92,000 Euros of services).

LOCATION LOW DOWN
On the hit list of ‘essentials’ for the perfect ski chalet – a prime location with direct ski lift access in a sought-after resort probably comes top of the bill. But such a purchase inevitably comes with a correspondingly high initial capital outlay. A savvy alternative could be to purchase on the resort outskirts, a short distance from the slopes and factor in transport costs to shuttle guests to the lifts. The latter option means transport costs can be deductible per annum from the rental turnover. Either way - it’s important to weigh up location pros and cons in tandem with projected rental returns ahead of signing on the dotted line.

OVERSEAS PERSONNEL
In certain circumstances, it may be a viable option to look at seconding staff from the UK to carry out catered chalet services, as a way of reducing salary costs. It’s worth noting however that criteria is strict in relation to the hiring of staff in this way and in many instances this option simply isn’t feasible.

PERSONAL USE
Depending on whether you are able to take advantage of the VAT reimbursement on your property purchase, you may well be able to use your property for personal use – the perfect perk delivering ultra-low cost holidays for the foreseeable future for you and your extended family.

LONG-TERM LEASES
If you have signed a long-term lease that is attached to the property itself, should you decide to sell your home within the period of the lease, the property would not only need to be sold with this lease in place, but any future purchaser would also be obliged to take over this lease. This may make the sales price less attractive than a freehold sale.

BANK INTEREST RATES
At a time when bank interest rates are low, it’s worth looking at fixed rates for mortgages related to your French property purchase. While the UK tends to favour a variable rate set-up, if rates are going to change in France over the next few years, it’s likely that they will increase rather than decrease, so a fixed low rate is a sensible way of ensuring you’re not caught out with higher costs in the future.

SAREG - FAST FACTS
Specialists in accountancy services for the furnished rental industry, SAREG can advise on all property related investment matters. For further information and an overview of fee structures, contact: Debbie Bradbury, SAREG Chartered Accountants: + 33 4 50 25 23 97 www.sareg.com