As we move towards the end of 2016, discussions, debates and questions are being raised around the tax reform set to be implemented in 2017. There is much talk of the new tax burden calculation, the changes in pensions and retirement, as well as the different innovations. Today, we will focus on what might change in terms of real estate and housing.

Housing savings: twice as many deductions possible

The bill seeks to promote access to housing. As such, it provides, for people under 40, for a doubling of tax deductions related to housing saving contributions.

In 2016, the deduction limit for somebody without children was €672 (mark-up of €672/child). Thus, for a couple, this amount is doubled, namely to a total of € 1,344 deductible on a joint statement.

In 2017, the deduction limit for somebody 18 to 40 years old without children will be doubled, and will thus rise to € 1,344 (with the mark-up remaining at €672/child). Thus, for a couple, the deduction limit will climb to €2,688 for those under 40, and will be maintained at € 1,344 for those above 40.

These tax gains can thus become very important, depending on the position of the particular taxpayer and his/her ability to save money.

Higher Deductible Interest Costs for Home Loans

In Luxembourg, a taxpayer may deduct the rental value of interest expenses related to his/her mortgage, provided that this is done to finance a primary residence.

In 2016, this interest expense deduction was capped at €1,500 for the first year of occupation, then at €1,125 for the 5 following years, and at €750 after this.

In 2017, following the reform, the ceilings will be increased. They will move from €1,500 to €2,000 for the 6 first years of occupation of the primary residence, from €1,125 to €1,500 for the 5 following years, and from €750 to €1,000 after this.

Here, we are talking about a personal deduction. Thus, for a couple who submits a joint statement, these ceilings will be doubled, with each dependent child also allowing for a certain amount to be deducted.

End to the Unit Value of Dwellings

The 2017 reform also provides for tax gains linked to income from the rental value of housing. As such, neither resident nor non-resident owners will have to pay this “tax rent,” which was fixed at €100/year for non-residents, and was based on a percentage of the unit value of the dwelling for residents.

Exemption of 50% for Rental in Social Housing

An exemption of 50% on taxable amounts will be implemented for taxpayers who rent properties from organizations approved by the Social Real Estate Agency.

Real Estate Surcharge Tax to Fall to a Quarter of the Rate

In order to encourage property sales, the tax reform also plans to reduce the real estate surcharge tax on the sale of property to ¼ of the rate (compared to ½ previously), between July 1st, 2016 and December 31st, 2017.

This information is based on the content of the 2017 draft tax reform law. There are still 2 months of discussions and potential modifications remaining before the final confirmation of the points mentioned above. We will continue to follow this issue.

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