Following the government’s coalition program and recent announcements, the draft bill n° 8353 was filed by the government on 7 February 2024, providing a first package of measures to enhance real estate investments which includes several tax measures.
Temporary tax measures applicable for 2024
The below measures will apply for fiscal year 2024:
- Allowance for registration and transcription duties for the acquisition of the main residence (“Bëllegen Akt”): the existing EUR 30,000 allowance (see our previous news) will be temporarily increased to EUR 40,000 for each individual and applicable to transactions taking place between 1st January 2024 and 31 December 2024.
- Allowance for registration and transcription duties for investment in rental properties by individuals: this new allowance is dedicated to investments in rental properties (sold in future state of completion, “VEFA”) and amounts to EUR 20,000 per individual. The notarial deed must contain the investor’s request and commitment to comply with the requirements set by the law. The acquired real estate must be rented within four years as from the date of the notarial acquisition deed for an uninterrupted period of at least two years and the rental agreement must be provided to the indirect tax authorities with within 3 months of its signature. Taxpayer having entered into an eligible transaction between 1st January 2024 and the law’s entry into force, must address a written request to the tax collector and sign a commitment to comply with relevant conditions.
- Reduced tax rate for capital gains on Luxembourg real estate: capital gains realized by individuals in the context of the management of their private assets on Luxembourg real estate held for more than two years will be subject to a quarter of the global rate applicable to the taxpayer instead of half the global rate.
- Neutralization of real estate capital gains: individuals realizing real estate capital gains at least 2 years after the asset’s acquisition will be granted a rollover relief if proceeds are reinvested in real estate rented under the condition of Article 49 of the Law of 7 August 2023 (i.e., social rental) or in real estate falling within the A+ class for energy performance, thermal insulation and environmental performance as defined in the Grand-Ducal decree of 9 June 2021.
- Special deduction for rental income derived from real estate acquired in 2024 in future state of completion (VEFA): the special deduction will correspond to a 4% deemed amortization of the real estate asset on the same basis as existing 2% amortization for rented buildings. The special deduction will be granted for the year of achievement and subsequent 6 years with an annual EUR 250,000 ceiling. The measure applies to taxpayers realizing rental income under Article 10 (7) of the Luxembourg income tax law.
Long term tax measures
- Holding period to determine the tax regime applicable to real estate capital gains: real estate capital gains realized by individuals are either fully taxable as speculative gains or subject to tax at half the taxpayer’s global rate with an EUR 50,000 allowance (doubled in case of joint taxation) depending on whether the asset has been held for up to 2 years or if it has been held for more than 2 years. As from 1st January 2025, the relevant holding period will be 5 years. This measure intends to reduce speculation on the real estate market and enhance the effects of the above mentioned temporary reduced taxation of real estate capital gains.
- Real estate capital gains exemption for disposal to social organism: existing tax exemption applicable to capital gains realized by individuals upon the disposal of Luxembourg real estate to the State, municipalities and associations of municipalities is extended to disposals to the Luxembourg Housing Fund (“Fonds du Logement”) a public organism in charge of social housing. Such exemption does no apply if the disposal takes place in the context of a pre-emption right.
- Increase in the tax deductibility of interest expenses in relation with the acquisition of the main residence: the portion of deductible interest will be increased by one third. Further details will be provided through a Grand-Ducal Decree.
- Exemption for income from social renting: the tax-exempt part of rental income derived by individuals from social rental will be increased from 75% to 90% when derived through organisations operating in the field of social rental management listed under Article 49 of the Law of 7 August 2023. The latter reference extends the scope of the exemption to income derived from social rentals through municipalities as announced in the 2023-2028 agreement of the government coalition.
- Introduction of a new partially exempt rent subsidy for employees below 30: employers will be able to pay a monthly rent subsidy to their employees under the age of 30 at the beginning of the fiscal year which will benefit from a 25% tax exemption at the level of the latter. Several conditions are applicable to benefit from the exemption (i) the monthly subsidy cannot exceed the higher of the actual rent or EUR 1,000 (for full time employees) and (ii) employee’s annual gross salary (including benefits in kind but excluding the rent subsidy) does not exceed 30 times the social minimum wage for skilled workers.