Land tax reform and new rules for the mobilisation of land and housing!

Ahead of the State of the Nation speech, the members of the Government presented the long-awaited reform of the land tax and the mobilisation of land and housing (including a frequently asked questions (FAQ)), which fulfils the objectives of the 2018-2023 coalition agreement. 

According to Yuriko Backes, Minister of Finance, the primary objective of this reform is to “put a serious brake on speculation and the growth of property prices, in order to increase supply, not to generate additional revenue."

Accordingly, the land tax (impôt foncier – “IFON”) will be reformed and supplemented by two new national taxes : (i) a new land mobilisation tax (impôt à la mobilisation de terrains – “IMOB”) and (ii) a tax on the non-occupation of dwellings (impôt sur la non-occupation de logements – “INOL”). 

If you own any land in Luxembourg, keep on reading this article for more information!

The new IFON

The IFON will continue to apply to all owners of land (foncier) in Luxembourg (with some exceptions that are applicable under the current regime, e.g., State, Public contractor, commune and NGO). 

• Revaluation of the basis - land value: 
  • a new valuation method will be established to assess the value of the land which was previously based on its value under the 1941 Law. The following main element will be taken into account: (i) surface area, (ii) buildable nature, (iii) distance from Luxembourg city based on journey time rather than distance and allocation of the land). The land value will depend on the land and not on the construction on the land or on the evolution of the real sale price as provided in a notarial deed. 
  • Reduction without exemption for a main residence will apply. 
• The rate will depend on the commune but is currently expected to range between 9% and 11%

An estimation can be made on the following website: 

https://mint.gouvernement.lu/fr/dossiers/2022/impot-foncier/impot-foncier-simulateur.html

It remains to be seen if this change could affect the basis for other taxes.

Introduction of the IMOB

The IMOB will be due by the owner of the unbuilt land (or section of land which would have sufficient space for building) which are buildable. No subjective exemption is available contrary to the IFON. It has to be paid to the State of Luxembourg.

The revenue from the IMOB tax will evolve continuously over time, i.e. according to the first simulations, the IMOB will generate revenues of 4 million euros five years after the introduction. After twenty years, revenues will amount to more than 270 million euros. 

Introduction of the INOL

By introducing the INOL, complementary to the reform of the IFON and the IMOB, the government intends to mobilise existing unoccupied housing.

The municipal tax on unoccupied dwellings (introduced in 2008 on an optional basis as part of the Housing Pact 1.0) will be replaced by a new compulsory national tax.

A dwelling is considered unoccupied if no natural person is registered in it for a consecutive period of six months. A dwelling could also be considered as unoccupied based on other grounds that will be defined by the law. The municipality must establish that a dwelling is not occupied.

The INOL will be levied by the Luxembourg Inland Revenue for the benefit of the State and will amount to 3.000 euros per dwelling for the first year. The tax will increase by 900 euros per year up to a maximum of 7,500 euros per annum.

Introduction of the national register of buildings and dwellings (“RNBL”)

The collection of the INOL requires the creation of a national register of buildings and dwellings. One of the objectives of the RNBL is to assign a unique identification number to all types of buildings and to each separate dwelling within the buildings. This will enable municipalities to register their inhabitants not only at an address on their territory, but also in a dwelling identified by its national identification number. 

Timeline

Assuming the bill is passed in July 2023, the law will enter into force for September 2025. With the implementation of all the necessary steps, the new land tax will therefore be applicable at the earliest in January 2026 and therefore to be paid at the earliest in 2027. The INOL will be payable at the earliest in 2028. The IMOB will be applicable at the earliest in January 2026, but since the rate remains at 0% for the first 5 years, it will only be payable thereafter.

In all, the financial impact for owners seems to be limited based on the presentation of the reform. More details are expected once the bill(s) are published.