In a strategic move to support and breathe new life into the housing market, the Luxembourg government has enacted a sweeping set of measures in a law voted on by Luxembourg’s parliament on May 22, 2024. Aimed at both personal homebuyers and real estate investors, these initiatives offer significant tax incentives designed to stimulate property acquisitions and bolster the rental market after the inflationary shock. Here’s an in-depth look at these provisions and their expected impact.

Enhanced Tax Credit for Personal Residence Acquisitions

What changes have been made to the “Bëllegen Akt” tax credit? The Luxembourg government has increased the tax credit for registration and transcription fees from €30,000 to €40,000. This applies to acquisitions documented by a notarial deed between January 1, 2024, and December 31, 2024. The aim is to make property purchases more affordable and stimulate market activity.

To streamline the process, the administration has laid out clear guidelines in Circulaire N° 820, issued on May 31, 2024. Homebuyers can receive direct reimbursement if they request the tax credit in the notarial deed at the time of acquisition. Alternatively, if the credit wasn’t initially requested, it can be obtained through a supplementary notarial deed, provided it meets the conditions stipulated in the amended law from July 30, 2002.

Encouraging Investment in Rental Properties

A significant addition to the new law is the introduction of a €20,000 tax credit for properties intended for rental purposes. This incentive is specifically designed for sales of future construction completion (VEFA, “vente en état futur d’achèvement”). By targeting investors, the government hopes to address the high demand for rental properties and stimulate the market.

Investors looking to benefit from this tax credit must adhere to the application process detailed in Circulaire N° 820. For notarial deeds executed between January 1, 2024, and June 30, 2024, a written request must be submitted to the competent receiver. Additionally, investors must sign a declaration agreeing to the conditions set forth in the new law.

Promoting Sustainable Investments

Sustainability is a key focus of the new measures. The law provides for the fiscal neutralization of nonspeculative capital gains if they are reinvested in accommodations for social rental management or properties that achieve energy performance class A or A+. This initiative is designed to encourage investments in energy-efficient housing and support the development of sustainable living spaces.

Increased Deductible Mortgage Interest

To further support property owners, the deductible amount of mortgage interest (per person in the taxpayer’s household) has been increased by one-third:

• From €3,000 to €4,000 for the first 5 years of living
• From €2,250 to €3,000 for the subsequent 5 years
• From €1,500 to €2,000 after 10 years

Temporary Reduction of the Tax Rate for Capital Gains

In an effort to mobilize properties, the law temporarily reduces the tax rate for nonspeculative capital gains — after two years from the acquisition — realized on the sale of real estate forming part of individuals’ private assets in 2024 to a quarter of the global tax rate (approximately 11%). This temporary measure is expected to encourage the sale and purchase of properties, thus adding momentum to the real estate market.

Conclusion

Luxembourg’s new real estate measures represent a comprehensive approach to revitalizing the housing market. By increasing tax credits for home purchases and introducing new incentives for rental properties, the government aims to stimulate both personal and investment property acquisitions. Coupled with the European Central Bank’s recent decrease in interest rates, the above initiatives are poised to significantly invigorate the housing market. The ultimate goal is to foster economic recovery and sustainable growth, benefiting buyers and investors alike.

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