The Pinel Law is one of the main features that allows individuals to reduce their income tax by investing in real estate. What are the advantages and limitations of the Pinel Law?
Reminder: What is the Pinel Law?
The objective of the Pinel Law is to revive rental investment in cities where demand is high by offering tax benefits to individuals wishing to invest in new properties or completely renovate a house.
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Any taxpayer residing in France as defined by Article 4B of the General Tax Code and subject to income tax can benefit from the scheme.
Read also: The Pinel Law in detail
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The advantages and disadvantages of the Pinel Law
The advantages of the scheme
- Being able to rent to family members
The main advantage of the Pinel Law is the tax reduction it provides access to. It amounts to 12% for renting a property for 6 years, 18% for 9 years, or 21% for 12 years. The maximum purchase amount considered is 300,000 euros, a relatively interesting ceiling.
- To be able to rent to ascendants or descendants
The Pinel Law allows those who wish to help family members stay in areas where the real estate market is tight.
- Preparing for retirement
At the end of your commitment, you will be able to use your housing as you wish, whether to live in it once you retire or to finance it by selling it, for example.
- Building wealth in a promising market
Pinel investments focus on areas where real estate value is lower than demand. Thus, owners have a great chance of making a profitable financial transaction and finding a tenant for their property rental.
- Becoming a homeowner with little or no contribution
A large part of the loan from a financial institution is generally easily repaid by the rents paid by tenants. It should be noted that beyond the mandatory commitment period, the owner is free to adjust their rent according to the evolution of the real estate market.
Read also: Reducing taxes by helping parents: how to do it?
Limitations of the Pinel Law
For the owner:
- Ceiling rents (depending on geographical location and resources) can reduce rental yield. Owners are indeed required to rent their property at about 20% below market rates in order to benefit from their tax advantage and facilitate housing for low-income households;
- Rented properties must be new, in a future state of completion, or constructed to be eligible for the Pinel scheme. Compliance with the BBC or RT 2012 standard, which includes reducing energy consumption of properties, is another factor to consider;
- The necessary commitment is another limitation of the Pinel Law, as the owner will not be able to enjoy their property for at least 6 years;
- It is not possible to benefit from the Pinel Law for more than two properties per year. To increase their tax advantage, one must either wait until the following year or turn to a complementary scheme.
For the tenant:
- Their housing must be their primary residence.
Read also: The Pinel Law is extended until 2017
The Pinel investment is a relatively advantageous arrangement for individuals wishing to reduce their income tax. It can be combined with other tax exemption schemes. Do not hesitate to seek advice from a professional.
Read also: How to set up a Pinel file?
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