Malraux scheme (VIR): what tax reduction for restoring an old building?

The Malraux scheme, text by text

The so-called Malraux scheme is an income tax reduction for property restoration expenses, codified at article 199 tervicies of the French General Tax Code (CGI). It targets an owner who restores a built property located in a remarkable heritage site (site patrimonial remarquable, SPR), most often bought through a contract for the sale of a building to be renovated (vente d'immeuble a renover, VIR, articles L. 262-1 to L. 262-11 of the French Construction and Housing Code). Under this contract the seller commits to carry out the works within a set period, and the price paid by the buyer splits into a price for the land and existing structure, and a cost of works paid on a schedule set by law.

The works must result in a complete restoration of the building, without changing its habitable volume, and are necessarily overseen by the Architecte des Batiments de France (ABF), through a specific authorisation set out in articles L. 632-1 and following of the French Heritage Code within the remarkable heritage site.

An essential condition, often left out of sales brochures: the owner must commit to letting the dwelling unfurnished, as the tenant's main residence, for 9 years, to someone other than a member of the owner's own tax household or an ascendant or descendant. Letting must begin within 12 months of the works being completed. Without this commitment the tax benefit is withdrawn.

22% or 30%: the rate depends on the perimeter, not the programme

Contrary to what sales brochures sometimes suggest, the 30% rate is not automatic: it requires the building to sit within a remarkable heritage site covered by an approved conservation and enhancement plan (plan de sauvegarde et de mise en valeur, PSMV). Outside a PSMV, the base rate of 22% applies.

A 400,000 euro cap over 4 years: the calculation, with a worked example

Eligible works spending is capped at 400,000 euros over a rolling period of four consecutive years, for planning applications or declarations filed from 1 January 2017. This rolling, not annual, cap lets the works be spread over several tax years without losing the benefit, within that overall limit.

Example. An owner funds 150,000 euros of restoration works in year 1, then 100,000 euros in year 3, in a building located in a remarkable heritage site covered by an approved PSMV. The total, 250,000 euros, stays under the 400,000 euro cap over 4 years. The tax reduction comes to 30% of that sum, 75,000 euros, spread over the years the works are paid for.

At the maximum 30% rate, the 400,000 euro cap corresponds to a theoretical maximum of 120,000 euros of tax reduction over 4 years.

Outside the tax-relief cap, with a 3-year carry-forward

A feature that clearly sets the Malraux scheme apart from most property tax-relief mechanisms: the reduction is expressly excluded from the general 10,000 euro per year cap on tax loopholes, for expenses incurred from 1 January 2013. It can therefore add to other tax benefits of the household without a combined ceiling.

If the reduction calculated for a given year exceeds the tax due, the excess is not lost: it can be carried forward against tax due for the following three years, under article 199 tervicies of the CGI. After that three-year window, any unused balance is neither refunded nor carried forward further.

What a sales brochure may leave out

Three points are worth checking before committing to a programme marketed as Malraux. The advertised 30% rate assumes an approved PSMV, not merely a remarkable heritage site. The 400,000 euro cap over 4 years only applies to applications filed from 1 January 2017; earlier applications were subject to a 100,000 euro annual cap. Finally, the 9-year letting requirement, to the tenant's main residence, conditions the entire benefit and is not optional.