What do you want to know?
Why invest in the Malraux law?
the Malraux device is a type of real estate investment that was created in 1962. This device allows a significant tax reduction and is aimed in particular at households with a high IMR.
Indeed, the principle of this device consists in buying a property in old real estate which must be entirely renovated (inside and outside) and not partially.
This allows investors to significantly reduce their tax amounts.
The amount of the work varies depending on the location of the property. The tax reduction therefore depends on the amount of work carried out.
However, a number of conditions must be met for investors to benefit from this device.
The main advantage of the Malraux investment is therefore the reduction in income tax.
The renovation works, validated by the architect of the buildings of France, lower your tax bill by 30 or 22% of a maximum expenditure of 400,000 euros.
Any owner of a building located in a historic district who decides to completely restore his property, to rent it out for residential use for 9 years, can benefit from a tax reduction under the Malraux law.
Malraux Law:
Tax exemption and invest in quality goods
What is the Malraux law?
Since 1962, the Malraux Law has made it possible to tax its investment by carrying out restoration work in old real estate.
These are located in historic city centers classified as Protected Sectors (SS) or containing an Architecture and Heritage Promotion Plan (formerly ZPPAUP).
The device aims to rehabilitate buildings and old French neighborhoods, by encouraging the most taxpayers to invest in order to benefit from advantageous tax reductions.
Designed to protect and conserve the architectural heritage, the Malraux law is a real estate tax exemption system which allows the owner who undertakes renovation work on an old property of historical nature, located in certain areas, to deduct the cost of the rehabilitation from his taxes
The Malraux law allows you to benefit from a tax advantage of up to 30% of the expenses incurred for operations undertaken from 2012. The tax reduction is proportional to the amount committed for the renovation of the historic property, within the limit of € 400,000, over 4 consecutive years.
The tax reduction granted by the Malraux system varies depending on the area in which the property is located. It amounts to 22% of work expenditure in the ZPPAUP (urban and landscape architectural heritage protection zone) or in areas for the enhancement of architecture and heritage. The percentage reaches 30% in “protected areas” and old “degraded” districts.
Finally, when investing with the Malraux law, property renovations may be subject to two legal arrangements:
Free Trade Union Association (ASL)
Renovated real estate sale (VIR)
Conditions of eligibility
Are eligible:
all premises intended for habitation after completion of the work, including those which were not originally;
premises not intended for housing, which were not originally assigned to housing and whose products fall under the category of property income.
The building must be located in a remarkable heritage site (SPR) and must:
either be covered by an approved safeguard and enhancement plan (PSMV);
either be covered by an approved architectural and heritage promotion plan (PVAP);
or, failing that, be the subject of a restoration declared of public utility.
Until December 31, 2022, when the restoration has been declared of public utility, it may also be a building located:
in an old degraded district;
in a district with a high concentration of degraded old housing and covered by a multi-year agreement as part of the new national urban renewal program (NPNRU).
Added value and accumulation of measures
In principle, the restoration expenses made since the acquisition by the purchaser of the building cannot be reduced from the taxable capital gain for the work carried out by the seller on the property.
Only the 15% flat rate after 5 years of detention can be used.
Special case of the investment made within the framework of a VIR (Sale of Building to be renovated)
In this hypothesis, the works form an integral part of the purchase price without it being necessary to question the question of the increase thereof.
The reduction can be combined with the old Cosse device.
However, it cannot be combined with:
Scellier, Duflot or Pinel devices,
the Girardin housing scheme,
the Demessine system,
the Censi-Bouvard device.
Rental conditions
The operation must result in the complete restoration of the building.This system applies to real estate restoration operations for which a building permit application or a prior declaration has been filed after January 1, 2017.
The rental must take place within 12 months of the completion of the restoration work.
If the premises are used for housing, the rental must be used as the tenant's main residence.
The rental cannot be granted to a member of the tax household, nor to an ascendant or descendant of the taxpayer.
No tenant's resource limit is to be respected.
The investor must commit to renting the property for a period of 9 years.
Deductible charges & capping
The following are taken into account for the calculation of the tax benefit:
demolition work, restoration of roofs or exterior walls, reassignment to housing, imposed by the public authority;
repair work such as roofing or exterior wall repair work or work to re-use a building originally intended for housing and which had lost this use for housing;
home improvement works;
development work on attics, attics or common areas in order to make them habitable;
insurance premiums;
compliance work;
management fees;
membership fees for urban land restoration associations.
Taxation & IFIs
The amount of the tax reduction is equal to the amounts of eligible expenses multiplied by a rate of tax reduction equal to:
30% of the total expenditure for buildings located in PSMV, AD or in approved districts.
22% of the total expenditure for buildings located in PVAP.
Expenses that give rise to the Malraux law tax reduction are retained within the limit of 400,000 euros over 4 years.
If the amount of expenditure is lower, the taxpayer can charge the work over 1, 2, 3 or 4 years. He then benefits from the entire tax reduction.
The Malraux device is by nature included in the calculation of the IFI.
However, for questions of tax optimization on income tax, we advise our clients to make their investment through bank financing.
In fact, in this case, the taxable base at the IFI remains unchanged, because the taxpayer's assets are increased by new real estate, but the liabilities also include new debt. In total, the impact of the operation is zero with regard to the IFI.
In addition, unlike a second home, a real estate investment may be discounted by 10 or 20% in the calculation of the taxable base of the IFI, taking into account reduced liquidity.
Detention
Detention
The investment can be made:
live,
through a company not subject to corporation tax,
or by subscribing to shares in real estate investment companies (SCPI).
The taxpayer must be the full owner of the building or of the securities (SCI or SCPI shares).
Any dismemberment of property is excluded, except in the specific case of the death of the taxpayer.
A joint purchase is quite possible.
Each co-owner benefits from the tax reduction calculated on the fraction of eligible expenses corresponding to the quota.
The Malraux property restoration investment allows a taxpayer domiciled in France to obtain a tax reduction in return for the acquisition of a property located in a building that will be the subject of renovation work in the objective of being let for residential use for nine years.
To benefit from this tax bonus, you must comply with a whole series of conditions.
The building must be located in a protected area, an old degraded district, an area for the enhancement of architecture and heritage or an architectural and landscape heritage zone (ZPPAUP);
the building must undergo a complete restoration and not a simple renovation;
the work is still carried out under the authority of the architect of the Buildings of France (ABF);
you must rent out the accommodation for a minimum of nine years.
The amount of the tax reduction granted under the Malraux law is calculated on the amount of work undertaken. The tax reduction however depends on the location of the building to be restored, within the eligible areas. Here is the detail :
in the case of a Safeguard and Enhancement Plan (PSMV), the reduction amounts to 30% of the work costs;
in old degraded neighborhoods and NPNRU neighborhoods, the reduction also amounts to 30%;
in the case of an Architecture Promotion Plan (PVAP), the tax reduction is set at 22%.
The Malraux law is however subject to an expenditure ceiling for the works. The expenditure ceiling is now 400,000 euros spread over 4 years, ie a maximum tax reduction of 120,000 euros over the period.
Advantages & Disadvantages of the Malraux device
Malraux Law
Example of use of the Malraux law
1
Initial situation
Sabine and Paul are married and have two children.
Now they want to invest in real estate to develop their assets in order to receive additional income in retirement while reducing their income tax.
Currently they pay € 16,000 in income tax per year and want to reduce the tax burden.
2
Investment in Malraux
After research, their choice stops on a 2-room apartment, eligible for Malraux
The purchase price is 320,000 € with work estimated at 171,000 €
They will benefit from a tax reduction of € 30,000 for the first year, then € 21,300 the second year.
3
Final situation
Thanks to the carry-over of the excess tax reduction, they will not pay income tax for more than 3 years.
In total, they benefit from a total tax reduction of € 51,300, or 16% of their investment.
