Buying a home is a long-term commitment, but it is often the result of an opportunity not to be missed. You think you have found the house or flat of your dreams, but rising mortgage rates are making you hesitate? Time to get out your calculator: attractive tax incentives, existing or on the way, could well make your project more affordable than you think.
A more generous tax credit on notarial deeds
New in 2023: the tax credit refunding a large share of the registration and transcription duties (Bellëgen Akt) rises from €20,000 to €30,000, i.e. €60,000 for a couple buying together.
This tax advantage is, however, reserved for the purchase of a main residence and subject to conditions: the buyer must move into the property within two years of signing the notarial deed of purchase, and remain there for a continuous period of at least two years.
A very attractive VAT rate for construction and renovation works
To address the housing crisis and help households onto the property ladder, the Luxembourg state created a super-reduced VAT rate of 3% instead of 17%. It applies to the cost of construction or renovation works on a home used as a main residence.
To benefit from this favourable VAT rate, it is best to entrust the works to approved tradespeople, who handle the formalities. That said, having paid VAT at the standard 17% rate to a non-approved supplier, you have five years to claim the difference back from the tax authorities.
Rental properties are covered too
The benefit generated by this tax break is of course not unlimited, but it can still reach the substantial figure of €50,000. That is a meaningful margin for easing your repayments — and perhaps enough to secure financing.
You have no immediate need to move but would like to invest in bricks and mortar to grow your capital? While the super-reduced 3% VAT rate cannot apply to the purchase of a property intended for letting, you can nonetheless benefit from it to carry out renovation works there and, for example, improve its energy performance.
Increase in the accelerated depreciation rate
Rental income means tax… To broaden the supply of rental property, an accelerated depreciation rate of 6% during the year the home is completed and over the following six years is currently under review by the Housing Committee. For older properties, this rate will apply to the cost of renovation works, provided it exceeds 20% of the purchase price of the home.
