4 minNew tax measures for the property sector: what has changed for buyers and sellers introductory
The Luxembourg government recently adopted a series of measures to boost the residential property market. These changes affect the purchase of a primary residence or rental property, and the sale of a property. Here’s what you need to know about the various scenarios.
Question 1: I’m buying a new primary residence. What will change under the new law?
If you buy your home in 2024, the allowance on registration and conveyance duty will be EUR 40,000 instead of EUR 30,000. For purchases made after 2024, the allowance will be EUR 30,000.
Note that registration and conveyance duties are 7% and applies to the market value of the property or to the land and built portion in the case of a VEFA (vente en l’état futur d’achèvement – property acquired off-plan).
If you’re buying your own primary residence, you’re entitled to a “Bëllegen Akt” tax credit on these duties. Take for example a couple buying a flat for EUR 1,000,000 in 2024. Payable duties will total EUR 70,000. Each member of the couple is buying half the property. They’ve never used the tax credit and are each entitled to an allowance of EUR 40,000, i.e. EUR 80,000 in total. They therefore won’t have to pay any registration or conveyance duties on the transaction, other than a flat rate of EUR 100.
Another example: a lady wants to buy a flat for EUR 600,000 in 2024. Duties amount to EUR 42,000.
She received an allowance of EUR 15,000 on her previous home. She’ll be entitled to an allowance of EUR 25,000 on her purchase in 2024. She’ll therefore have to pay registration and conveyance duties of EUR 42,000 - EUR 25,000, i.e. EUR 17,000.
There is another change to keep in mind regarding the purchase of a primary residence. This concerns the amount of deductible interest on the loan taken out to finance the primary residence. The deductible limits based on the date of availability of the home have increased by a third from the 2024 tax year:
- 1-5 years: EUR 4,000 (up from EUR 3,000)
- 6-10 years: EUR 3,000 (up from EUR 2,250)
- +11 years: EUR 2,000 (up from EUR 1,500)
The caps apply as soon as the construction of the property is complete, even if it isn’t yet occupied, and are multiplied by the number of household members.
Question 2: I’m planning to buy a flat and rent it out. Can I get a tax credit?
A new tax credit has been introduced for purchases of a rental property in 2024. It amounts to EUR 20,000 per buyer, which will be deducted from the registration and conveyance duties of 7%.
This only applies to VEFA purchases signed in 2024. Buyers must commit to letting the property for at least two years, starting no later than four years after the deed is signed. For example: a single person buys a flat through a VEFA in 2024 for EUR 600,000, with the intention of renting it out. Registration duties will apply on the land and the portion of the building already constructed as of the acquisition date. Let’s assume construction has not yet started. The land is valued at EUR 200,000 in the deed. The duty on this amount is EUR 14,000. The EUR 20,000 allowance means that no registration and conveyance duties are payable. Upon completion of construction, the owner must present the lease agreement to the Luxembourg Registration Duties, Estates and VAT Authority (Administration de l’Enregistrement et des Domaines, AED) within three months of signing to ensure compliance with the conditions entitling him or her to the tax credit.
Question 3: I’m selling my rental property. How will it be taxed?
An individual property owner decides to sell his rental property in 2024. He has owned the property for more than two years. The realised capital gain will therefore be taxed at a more favourable rate.
Under normal circumstances, this gain is taxed at half the taxpayer’s overall tax rate. For 2024, this has been reduced to a quarter of the overall tax rate.
For example: In 2015, John bought a flat in Luxembourg City for EUR 500,000. He sells it in 2024 for EUR 650,000.
The capital gain will be calculated by deducting the purchase price revalued using the 2015 tax coefficient (1.15) from the sale price.
Capital gain: EUR 650,000 - EUR 500,000 x 1.15 = EUR 75,000
An allowance of EUR 50,000 is deducted from the capital gain (provided that it has not been used in the last ten years).
Taxable capital gain: EUR 75,000 - EUR 50,000 = EUR 25,000
The tax rate on his total income is 36%. The tax rate applied to the capital gain on a sale in 2024 is 36 / 4 = 9%.
Tax on the capital gain realised in 2024: EUR 25,000 * 9% = EUR 2,250
From 2025, the tax rate will once again be half the overall rate. In addition, the qualifying period will be five years instead of two years.
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