Enlighten your future New Tax and Legislative Measures for the Housing Market
New Tax and Legislative Measures for the Housing Market
The Law of May 22, 2024 on the Recovery of the Housing Market introduces a set of measures intended to rebound the real estate market in Luxembourg. Due to the simultaneous increase in interest rates and construction costs, the real estate market has seen a significant slowdown. To counter this trend, the government has put in place several tax and legislative provisions, Which are expected to come into force as from 2024 from 2024. Here below is a detailed summary of the main features of this law:
1. Capital gains from the sale of real estate property
Reduced Taxation in 2024: Capital gains made on buildings held for more than two years Starting from January 1st, 2024 until December 31, 2024 will be taxed at a rate equal to the quarter of the overall rate (previously it was half of the overall rate) and at a maximum rate of 10.5% . This rate does not interfere the calculation of any support allowance provided from the Employment Fund.
Changes from 2025: As From January 1, 2025, only transfers of real estate property held for more than five years will benefit from the advantages provided in the long term capital gains regime.
Taxes will be levied on capital gains on buildings held for five years or less and will fall within the short-term capital gains regime
2. Rental Income from Immovable Property and Exemption from Rental Income:
The exemption from rental income from property held by organizations managing social rents is increased up to 90% as from January 1, 2024. This exemption had been already increased from 50 % to 75% as of January 1, 2023.
A support allowance at 4% rate was introduced due to construction costs and which is applicable to any depreciation up to the cost limit of 250,000 EUR. In scope of this allowance are rental housing acquired between January 1st, 2024 and December 31, 2024 in a future state of completion.
3. Financing of the Main Residence and Deduction of Interest payments on debt :
The maximum amount at which the interest charged on payments of debt may be deducted (offset) has been raised to 4,000 EUR per person, for the acquisition of the principal residence, starting from the year when the rental value is calculated and following the next five years. Afterwards, this amount has been brought to 3,000 EUR during the next five years and subsequently to 2,000 EUR for the next following years.
4. New Rental Premium
Exempt Bonus for Young Employees: A rental bonus granted by the employer to its employees tenants under the age of 30 is introduced, with a tax exemption equal to 25% of the bonus paid by the employer. The bonus cannot exceed neither the amount of the rent excluding any charges borne by the employee nor 1,000 euros per month.
5. Tax credit on rental income
Tax Credit for Investors: A tax credit on registration and transcription fees, up to a maximum of 20,000 euros, is granted for the acquisition rental propertydocumented by a notarial deed passed between January 1, 2024 and December 31, 2024.
6. Relaunch of Deferred Capital Gains
Reactivation of the Capital Gains Transfer Regime: The regime allowing the deferral of taxation of long-term capital gains in the event of reinvestment in a new building intended for social rental management is reactivated from January 1, 2024.
7. Exemptions for Transfers to Public Entities and New Beneficiaries of the Exemption:
The exemption applicable to capital gains resulting from transfers of buildings to the State, to municipalities, to municipal unions, and now also to the Housing Fund, is integrated into the law and expanded.
These measures are designed to stimulate the real estate market by making investment in housing more attractive and offering significant tax advantages to owners and investors. They aim to encourage the construction of new housing, facilitate access to property and rental for young people and support social housing initiatives.
For any questions or advice on how to take advantage of these new legislative provisions, do not hesitate to contact us.
