Are you thinking about the possibility of investing in rental property and are you thinking of using one of the available tax incentive schemes? Between Pinel, Denormandie and the new Loc’Avantages, which one to choose?
Are you interested in rental investment? You are not the only one. A recent survey (1) carried out by OpinionWay for Selexium has once again confirmed the interest of individuals in this subject. But if two thirds of the French have knowledge of Pinel, the main tax incentive device for rental investment, only 23% clearly know what it is. You want to invest but you don’t know the different solutions that could bring you serious tax advantages? Here is a reminder of the three main tools at your disposal.
Pinel: to reduce tax by buying new
The Pinel device dedicated to investment in new housing (or similar) allows a tax reduction of 12%, 18% or 21% of the acquisition amount (within the limit of 300,000 euros). A tax deduction spread over a respective rental commitment period of 6.9 or 12 years old (i.e. a maximum of 6000 euros per year).
To benefit from this, the accommodation must respect certain characteristics and be located in an area of rental tension (zone A bis, zone A and zone B1). The owner must undertake to rent it as main house of a tenant for a ceiling rent. Since January 1, 2021, the scheme has been restricted to investments in collective residential buildings.
Example
For the purchase of a new apartment, eligible for Pinel, worth 195,000 euros for 65 m2, an individual can obtain a total tax reduction of 23,400 euros for a 6-year commitment (i.e. 3900euros reduction each year for 6 years), 35100euros for 9 years and up to 40950euros in total for 12 years.
Sign of the attraction of this device, 257,000 households will benefit from the Pinel tax reduction in 2022, according to the figures published in the documents annexed to the 2022 finance law.
This system is virtuous in terms of housing production. The vast majority of Pinel investors pay less than 8,000 euros in income tax per year. These investors want to build a capital for the future purchase of their main residence but also to build additional income for retirementestimates Philippe Rochereau, president of the French Association of the rental investment (AFIL).
More and more young investors aged around 30 are starting with rental investment via the Pinel system. It is an alternative chosen in relation to the increase in real estate prices in the cities and the anxiety about retirement, abounds Manuel Ravier, general manager of Investissement Locatif. But be careful not to overestimate the gains of such an investment.
Conditions, taxation… All the details of the Pinel scheme
Pinel will change
To benefit from the basic Pinel system, with the most advantageous tax reduction rates, investors will have to buy their home before December 31, 2022. After this date, the accommodation will be under the Pinel+ system. To be eligible for the latter, accommodation intended for rental must comply with a minimum surface per typology: 28 square meters for a T1, 45 square meters for a T2, 62 square meters for a T3, 79 square meters for a T4 and 96 square meters for a T5. In addition, from T3 upwards, the dwellings must systematically be provided with a private outdoor space and present a double exposure.
These new minimum surface area constraints will inevitably exclude certain households. One-bedroom apartments represent 50% of housing needs in sprawling areas. Imposing a minimum area increases the entry ticket for investors. The Pinel will become a luxury product. These constraints added to those environmental will exclude households with more modest incomes, fears Philippe Rochereau.
But beware. In addition to the future development of the Pinel system, a new standard risks making new real estate more expensive. This is the RE2020. It has been imposed for all new construction of individual housing since January 1 and will have an additional cost impact of 5 to 10% of the construction price.
Denormandie: to rent renovated accommodation
If the Pinel is dedicated to new, its cousin the Denormandie is aimed at those wishing to acquire a old housing to renovate and then rent it out. Set up in November 2018, this system is open to acquisitions of housing or premises assigned for a use other than housing made between January 1, 2019 and December 31, 2023.
To benefit from the tax reduction of the Denormandie system, the investor agrees to rent his property for 6 years minimum. He can also agree to a term of 9 or 12 years, if he wishes. As for the Pinel, the tax deduction amounts to 12% of the price of the property for 6 years of rental, 18% for 9 years and 21% for 12 years of rental. While the Pinel system can only concern a maximum of two dwellings per year, for the Denormandie, there is No limits but a maximum of 63,000 euros tax exemption over 4 years.
Small subtlety: the Denormandie was set up for old housing requiring work. These must represent at least 25% of the total cost of the operationthat is to say acquisition price, notary fees, commissions for any intermediaries, registration fees, land advertising tax and works included.
And not all old dwellings that need to be renovated can give their purchaser the benefit of a tax reduction. In fact, only properties located in the 222 municipalities that have signed the City Center agreement or those that have passed a territory revitalization operation agreement (ORT) are concerned.
Retirement : save by paying less tax. 11 contracts compared
I do not recommend this device for a first rental investment. You have to know the local issues well, do a market study. This system concerns towns whose attractiveness is not obvious and this system should have been accompanied by a revitalization of the economic fabric. The renovation market is far from simple and there are not, as for Pinel, identified housing. The investor must look for it himself, warns Philippe Rochereau.
And for the moment, this device does not yet seem to find its audience. According to the simulation published in the documents appended to the 2022 finance law, only 245 households will benefit from the tax reduction in favor of Denormandie this year. The tax reduction will have a very limited cost for public finances: 2 million euros. Conversely, the shortfall for the state coffers with Pinel in 2022 amounts to nearly 1.4 billion euros.
All about tax exemption in old real estate with Denormandie
Loc’Avantages: tax exemption by applying a moderate rent
Formerly known as Cosse and Louer Affordable, the Loc’Avantages system has just come into force. It now allows a tax reduction ranging from 15% to 65% of annual rents depending on the extent of the reduction in rent granted and whether or not a social intermediary is used to manage the accommodation. It concerns accommodation under agreement with the National Housing Agency (Anah) and to take advantage of the system, the beneficiary must not exceed a maximum amount of rent, with three possible levels: – 15% on market rents, -30% and -45%. The key, in the latter case, and on condition of entrusting the management of the property to a social intermediary, a tax reduction which climbs to 65% within the limit of 10,000 euros of the ceiling for tax loopholes.
Example
Bercy in detail the following example, for a 60 m2 apartment rented in Nantes, with a monthly rent of 606 euros and a targeted reduction of 15%: If the accommodation is rented for 12 months, the tax reduction will be equal to: (606 x 12) x 0.15 = 1090.08, or 1091 euros. The tax reduction in the amount of 1091 euros can be deducted from your 2022 income tax.
Namely: Anah has posted a official simulator for Loc’Advantages.
This device is aimed rather withdrawn individualsalready owners, who have already repaid the real estate loan for the property to rent and who want to help people in difficulty, explains Manuel Ravier.
Indeed, despite the tax advantage, an investor may have difficulty obtaining a mortgage to rent the accommodation thanks to Loc’Avantages. The bank risks relying solely on the fact that the rent will be lower than for conventional housing. It could call into question the customer’s borrowing capacity and therefore the relevance of the operation.
Despite everything, the government has set itself the objective of concluding 20,000 rental agreements by the end of the year with Loc’Avantages against 8000 today. The approximately 110,000 housing units rented via the former Cosse scheme, then Louer Affordable, continue to benefit from this. They may be extended despite the arrival of Loc’Avantages if the lessor considers that the latter is less favorable to him.
To remember
- Pinel and Denormandie: tax reduction of 12% 21% of the acquisition amount;
- Loc’Avantages: tax reduction of 15% 65% of the annual rental amount;
- 6 years minimum rentalfor the 3 devices.
Find the best real estate rate
(1) Survey carried out by OpinionWay for Selexium among 1004 people representative of the French population, from September 15 to 16, 2021.