What is the Plan épargne logement (PEL)?
The Plan épargne logement (PEL) is a regulated savings product in France which allows you to potentially obtain a mortgage at preferential rates after four years of investment. The loan can be used to finance property purchases, construction or renovation work. You can use this account to save for your primary residence, a second home or a buy-to-let investment into a property rented primarily to tourists. This blog is based on the rules in 2023 and for accounts opened since 2018.
Where can you open a PEL?
You can open one with most banks in France. However, if you already have a compte épargne logement (CEL), a different product, then you must open your PEL in the same bank. You can only have one PEL at a time per adult or child in your household but there is an exception for any PEL accounts that were inherited.
What is the minimum investment amount and investment period?
In 2023, it is 225 euros to open an account and you must invest at least 540 euros per year, or 45 euros per month, into the account for at least four years. If you do not, you risk your account being closed and losing the benefits of having a PEL.
What is the maximum investment amount and investment period?
In 2023, you can invest up to 61,200 euros into a PEL. The account value can exceed this amount due to interest. You cannot invest any further funds after the 10-year anniversary of your account but you can continue to earn interest for five years after the 10-year anniversary.
Can I withdraw funds before the four-year minimum period?
Yes, but your account will be closed and there are consequences which depend upon when you withdraw your funds:
- After four years
- No penalties
- Between three and four years
- Your keep the interest but you will no longer benefit from the maximum amount of the subsidised loan, called the prêt épargne logement.
- Between two and three years
- You keep the interest, but you can no longer benefit from the subsidised loan, called the prêt épargne logement
- Before two years
- The interest earned is recalculated and you can no longer benefit from the subsidised loan, called the prêt épargne logement
What is the interest rate for savings for accounts opened in 2023?
The interest rate is fixed at the account opening and is 2% before tax per year for accounts opened in 2023. The interest is compound interest.
What is the tax treatment of the interest?
Interest is taxed at 30% (12.8% income tax and 17.2% social charges) but you can opt for your marginal tax rate if you wish. The purpose of the PEL is to obtain a mortgage at a lower interest rate, not for the tax treatment of the interest on savings.
What is the prêt épargne logement?
It is a mortgage at usually preferential interest-rates and qualifying for this is the main point of a PEL account. If you opened your account after March 2011 then the notable points are as follows:
- The maximum loan amount is 92,000 euros but this can be combined with other loans for more expensive projects. The maximum amount that you are eligible for depends upon how many “droits à prêt” (loan rights) that you have acquired, which is based on the amount of interest that your account has earned.
- You can give your loan rights to a family member as long as your family member has had a PEL account for at least three years.
- The interest rate in 2023 is 3.2% fixed for the lifetime of the mortgage (most French mortgages rates are fixed for the lifetime of the loan). Note that in Octobre 2023, interest rates are about 4% for non-PEL 15-year mortgages.
- The maximum term of a prêt épargne logement is 15 years, compared to 25 years for most French property purchases. However, you can combine this loan with a traditional mortgage from the same bank.
Can you transfer your PEL to another bank?
Yes, but your bank has the right to charge you for the transfer or even to refuse the transfer.
What happens on death of the PEL account holder?
It depends whether death occurs before the end of the contract term (minimum of four years) or after it:
- Death before the minimum contract term
- Your beneficiaries can continue your plan, but they need to respect the plan’s conditions such as the minimum annual investment of 540 euros.
- If a beneficiary already has a PEL then they can maintain their existing PEL, as well as the new one.
- If no beneficiary decides to continue the account then the account is closed and the funds are sent to the beneficiaries once any French inheritance tax has been paid “droits de succession”.
- Death after the minimum contract term
- The account is closed, and the funds are added to the deceased person’s estate and subject to French inheritance tax rules “droits de succession”.
The views expressed in this article are not to be construed as personal advice. Therefore, you should contact a qualified, and ideally, regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. Consequently, if you do not, then you are acting under your own authority and deemed “execution only”. Additionally, the author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Importantly, this article is dated and is based on legislation as of the date. It should be noted that legislation changes, but articles are rarely updated. Sometimes a new article is written; so, please check for later articles. Additionally, check for changes in legislation on official government websites. Finally, this article should not be relied on in isolation.