Rental investment : DENORMANDIE scheme

What is the Denormandie scheme ? Can you benefit from it ?

The "DENORMANDIE" scheme is a tax incentive for rental investment, enabling taxpayers to obtain a reduction in income tax (article 199 novovicies of the French General Tax Code).

It is aimed at French tax residents who purchase, between January 1, 2019, and December 31, 2026, an empty property that is going to undergo or has undergone renovation, or a premises used for a purpose other than housing with the aim of converting it into a dwelling (or which has been converted in the context of a sale to be renovated). The amount of the work, invoiced by a company, must represent at least 25% of the total cost of the operation (purchase + work).

Denormandie scheme : which homes are concerned ?

It concerns : 

• properties for the purpose of carrying out improvement works (including as part of a contract for the sale of a building to be renovated, or VIR),
• properties that have undergone improvement works,
• premises that the taxpayer converts for residential use,
• properties resulting from the conversion of premises used for a purpose other than housing (including as part of a contract for the sale of a building to be renovated, or VIR).

Denormandie scheme : conditions relating to the work to be carried out.

Eligible works

Eligible works are defined by the decree no. 2020-426 of April 10.

The scope of work includes the creation of new living spaces or ancillary areas, the modernization, sanitation, or layout of living or ancillary spaces, as well as projects aimed at saving energy across all these areas. Ancillary surfaces encompass garage spaces, parking spots, and shared communal facilities, as well as the following dependencies: loggias, balconies, private accessible terraces, verandas, outdoor drying areas outside the dwelling, cellars of at least 2 square meters, and, in single-family homes only, individual garages and accessible attics. These efforts should contribute to improving energy performance.

Energy Performance

To qualify for the Denormandie tax incentive scheme, the work carried out must :

• Lead to an improvement in the housing's energy performance by at least 30% (or 20% in collective housing) and achieve, at a minimum, an E energy label on an Energy Performance Diagnosis (DPE) after the work, corresponding to a conventional primary energy consumption less than 331 kWh/m2/year; or
• Involve actions to enhance energy performance in at least 2 out of the following 5 categories (while adhering to specific technical requirements): thermal insulation of roofs, exterior walls, or glazed partitions, installation or replacement of heating systems, or domestic hot water production systems. This must also achieve, at a minimum, an E energy label on a DPE after the work, ensuring a conventional primary energy consumption less than 331 kWh/m2/year).

Completion date

If the work is carried out by the purchaser, it must be completed no later than December 31 of the 2nd year following acquisition of the property.  

Supporting documents

Proof of compliance with the energy performance requirements for determining the consumption threshold after work and the reduction in consumption is provided by supplying :

• Two Energy Performance Diagnoses (DPE) conducted by professionals. These documents must certify the energy consumption reductions before and after the renovations.
• Invoices, excluding deposit invoices, from the companies that carried out the work. These must detail the location of the work, the nature of the renovations, as well as the performance characteristics and criteria required..

Denormandie scheme: conditions relating to the location of the property.

Zoning

The application of the scheme requires that the property be located in areas with identified needs, particularly in cities that have signed so-called "Cœur de Ville" agreements or in municipalities that have initiated a revitalization operation of their territory (by signing an ORT agreement or territory revitalization operation). The list of municipalities eligible for the scheme is established by the decree of March 26, 2019, relating to the list of municipalities entitled to the tax reduction provided under 5° of B of I of article 199 novovicies of the General Tax Code.

Denormandie scheme: rental conditions

Principal residence

The property must be rented unfurnished for use as a principal residence.

Effective date of rental

The property must be rented no later than 1 year after completion of the building, or its acquisition if later.

Lease term

The owner undertakes to rent the property for at least six or nine years. The option must be exercised when filing the income tax return for the year of completion of the building, or its acquisition if later.

At the end of the initial six- or nine-year rental commitment period, the taxpayer can extend it for a further three-year period (in the case of an initial 9-year commitment), or two three-year periods (in the case of an initial 6-year commitment), bringing the maximum rental commitment and benefit from the tax reduction to twelve years.

Rent levels

Rent must not exceed certain ceilings, excluding charges, identical to those for the new Pinel scheme.

These ceilings vary according to the surface area of the property concerned.
 

Please note : to take account of the specific features of local rental markets, rent ceilings may be reduced locally by order of the regional prefect.

Denormandie scheme : tenant conditions

The tenant can be one of your ascendants or descendants. However, he or she must not be a member of your tax household. His or her reference tax income must not exceed certain thresholds.

Advantages of the Denormandie scheme

Tax reduction base

The tax reduction is calculated on the cost price of up to two dwellings, within a limit of €5,500 per square meter of living space and not exceeding the limit of €300,000 per tax household per year. 

It should be noted : the granted tax reduction falls within the overall ceiling of tax niches.

Tax reduction rate

• France, mainland

It varies according to the length of the rental commitment. It is 12% for a six-year commitment, 18% for a nine-year commitment and 21% for a twelve-year commitment.

• Overseas departments and communities

It is : 23% for a 6-year lease, 29% for 9 years and 32% over 12 years.

Please note : if the tax reduction exceeds the tax due for the tax year, the balance cannot be offset against income tax for subsequent years.

Denormandie scheme : specific reporting obligations

Depending on the situation, the taxpayer must attach to their income tax return for the year the property was completed, or the work was carried out, or its acquisition if later, a summary note detailing the work carried out and their cost. They must also keep documents available for the Administration that justify the nature of the work and the level of energy performance.

Denormandie scheme : cases where the tax advantage is called into question 

Image (1000*yyy)

Denormandie scheme : how it will be challenged 

Image (1000*yyy)