The Government, in its latest 2012 austerity plan, has just announced the abolition of the main tax-saving investment scheme known as Scellier. This scheme gives rise to an income tax reduction for investment in new-build property associated with a 9 year lease for property situated in certain geographical areas. The abolition of this scheme as of 31st December 2012 has just been announced. It will still be possible to invest in 2012 but the tax reduction will be reduced to 14% (reduction spread over 9 years, thus an effective reduction of 1.55% per annum) solely for those buildings certified as 'BBC' (Low Energy Consumption). For 'non-BBC' buildings no reduction will be possible. It is proposed to retain a rate that could go to 22% until 31st December 2011 for reservation contracts signed prior to this date subject to the condition that the deed of sale is signed prior to 31st March 2012.

Concerning other types of rental investment under the Censi-Bouvard (LMNP) scheme such as tourist residences and residences for students and the elderly, it is likely that this scheme will also be abolished at the end of 2012. This scheme concerns investments in residences complying with certain criteria associated with a 9 year commercial lease signed with the residence's operator. The rate of the tax reduction will be cut back to 12% in 2012 (reduction also spread over 9 years, thus an effective rate of reduction of 1.33% per annum) but, in all likelihood, such an investment will continue to give rise to a right to recovery of VAT (VAT at a rate of 19.6%) on the purchase price.

These modifications will be incorporated into the 2012 Finance Law which will be voted in December. In an uncertain legislative and economic context, it is possible that modifications will be made prior to the final vote. Certain commentators are of the view that, in any event, these schemes are much too important and that, as a result, they will not disappear definitely and will be replaced by new schemes at the time of the general elections next year...

17th November 2011