Proposal for new housing incentives

On 7 February 2024, the Luxembourg Government introduced a bill (“Bill”) proposing new housing measures (“Measures”) including tax incentives for property buyers and investors aiming at stimulating investment in rental housing, generating activity around existing buildings and promoting social rental management.

Most of the Measures are temporarily applicable to purchases and investments made between 1 January 2024 and 31 December 2024. However, the Bill also includes non-time-limited structural Measures.

What Measures for property buyers?

The Bill introduced two tax incentives for property buyers of principal residence.

• The tax allowance "Bëllegen Akt" for a primary residence purchased in 2024, increases from EUR 30.000 to EUR 40.000 per person.
• A non-time-limited measure, the tax deductibility limits for interest on debts relating to owner-occupied housing or intended to be occupied by the owner increases by one third. 
  The deductibility will increase as follows:
  - from EUR 3.000 to EUR 4.000 for the year of occupation and the following 5 years;
  - from EUR 2.250 to EUR 3.000 for the following 5 years (6-10 years)
  - from EUR 1.500 to EUR 2.000 after 10 years of occupation

These relevant amounts are to by multiplied by the number of people in the taxpayer’s household.

Details on this measure will be provided by a Grand-Ducal regulation.

What Measures for property investors?

Moreover, the Bill introduces several tax incentives for property investors aiming at boosting investment in construction of housing buildings and in social housing.

• Capital gains realised in 2024 on the sale of immovable property are taxed at the quarter of the overall rate. This measure is applicable only if the interval between the acquisition (or construction) of the property and the sale exceeds two years.
• A tax allowance "Bëllegen Akt" of EUR 20.000 per person on registration and transcription duties for investor-buyers in rental housing is created. Specific conditions must however be met, e.g. the property must have been acquired through an off-plan sale ("vente en l’état futur d’achèvement") between 1 January 2024 and 31 December 2024 and the purchaser must undertake to lease the property for an uninterrupted period of at least two years.
• The accelerated depreciation rate increases from 2% to 6% for housing built for rental purposes. The annual ceiling is set at EUR 250.000.
• This measure is eligible only if (inter alia):
  - The taxpayer has signed a deed of sale between 1 January 2024 and 31 December 2024;
  - The deed of sale concerns an off-plan sale ("vente en l’état futur d’achèvement");
  - The accelerated depreciation is applicable over 7 years after the completion of construction (taking into account the year of the completion of construction on a prorate basis and the six following years).

What other Measures?

The Bill proposes other non-time-limited structural Measures to promote social rental management, stimulate investment in rental housing and boost property sales (while limiting property speculation).

• The tax regime of profit from real estate speculation has been tightened by amendment of Article 99bis of the Luxembourg Income Tax Law (“LITL”). According to the Bill, a property sale would give rise to a speculative profit if it has been sold less than 5 years after its acquisition or construction (instead of the 2 years limit currently applicable). A speculative profit is taxed at  the marginal rate whereas the long term profit is taxed at half the overall rate.
• The exemption for net income from renting a property through an organisation operating in the field of social rental management ("gestion locative sociale") increases from 75% to 90%.
• Article 102 (8) LITL would be amended so as to provide a rollover relief on capital gains tax due on the sale of a property provided that such capital gains are transferred to housing used for social rental management purposes within the country or on homes with an A+ energy performance rating. Conditions of this measure will be provided by a Grand-Ducal regulation.
• The exemption from capital gains tax on the sale of property by an individual to the State, a municipality or commonwealth of municipalities extends to the Housing Fund ("Fonds du logement").
• A tax exemption is introduced for premiums paid by companies for the purpose of renting a property.

This measure is reserved for young employees under 30 whose income level is lower than 2.5 times the minimum wage ("salaire social minimum"). The ceiling of the tax exemption is fixed at EUR 1.000 per month, 25% of which will be tax-free.