Capital gains on property in Luxembourg are subject to specific rules. If the property is your principal residence, it is exempt from taxation. For other properties, the gain on disposal is taxed at half the overall rate, with possible allowances to reduce the tax burden.
Dive into our guide to better understand this complex subject.
IMPORTANT: To stimulate the property market, the Government has decided to reduce taxation from the overall half-rate to a quarter of the overall rate for all sales completed in 2024. The sample calculations below use the overall half-rate as a reference. If you complete your sale in 2024, bear in mind that you will be taxed at half the usual rate, i.e. each time our examples use 50% of the overall rate, you will have to apply 25% of the overall rate. This temporary measure is (currently) limited to any sale finalised by a notarial deed in 2024. If you own a rental or inherited property, read in which case we strongly advise you to sell in 2024.
No taxation of the main residency.
First of all, if it is your main residency, there is no capital gains tax.
To check if the property is considered as your main residency, use the official simulator of the tax administration.
If the property sold is not your principal residence, you may also be interested in our article Do I have to pay tax on the sale of my property?
Which tax rate applies?
The gain on sale (i.e. the capital gain you realize on the sale of the property) is taxed at the half overall rate (i.e. half of your annual tax rate) plus care insurance (1.4% at the time of writing). If, in the year of taxation of the property sale, your overall tax rate is, for example, 36%, the property sale will be taxed at half of 36% + 1.4% care insurance (“assurance dépendance”) = 19.4%.
(Technical note: It is often said that the sale of a property is taxed at 21%, which is partly correct. This is because 21% is half the maximum overall rate (42%), which is often applicable in the year of the property sale, since you risk falling into the maximum 42% tax bracket. However, if the capital gain is fairly small and/or you can apply several allowances and/or if there are several heirs (in which case the capital gain is divided between the heirs), your overall rate may be less than 42% and you will therefore be taxed at less than 21%. If your overall rate is, for example, 36%, the half overall rate will be 18%. But you will always have to add the 1.4% care insurance, so your final tax rate will be 19.4%).
However, if you sell a property within 2 years of its acquisition, it is no longer a sale profit but a speculation profit, which is taxed at the overall rate.
Therefore, what date should be taken into account as the acquisition date to determine whether it is a disposal profit (the disposal takes place more than 2 years after the acquisition) or a speculative profit (disposals within 2 years of the acquisition)? The date to be taken into account is the date of the notarial deed by which you acquired the property. In the case of free acquisition (i.e. donation or inheritance), the acquisition date is the date on which the property was acquired for valuable consideration by the previous holder.
How is the profit (from sale or speculation) calculated?
The profit is equal to the difference between the selling price (as stipulated in the deed of sale) and the acquisition price and the procurement costs.
The acquisition price is made up of all the expenses incurred by the owner to put the building in its condition at the time of sale. This is therefore the price paid for the property, increased by costs such as transfer duties, VAT, notary fees relating to the deed of sale, etc.
Procurement costs are the costs incurred in direct connection with the sale of the property. This mainly concerns the agency commission and the costs for the energy performance certificate.
It should also be noted that, except in case of speculation profit, the acquisition price is revalued. This is done by multiplying the acquisition price with a coefficient that depends on the year of acquisition of the building. These coefficients change from year to year, so we cannot give a specific example here. The coefficients can be found in section 102 of the Income Tax Act.
The allowances on the property sales tax
The profit thus generated may be reduced by one or two allowances, namely:
- Decennial allowance of € 50,000 (increased to € 100,000 for spouses / partners collectively taxed);
- One-off inheritance allowance of € 75,000, as long as the transferred building was acquired by direct inheritance and used as principal residence by the transferor’s parents, in accordance with Article 130 (5) LIR.
First, some additional explanations in relation to these 2 allowances:
The decennial allowance of 50.000 EUR per taxpaying partner is, as its name suggests, based on 10 years, ie every 10 years the counters are reset to 0 and you can again fully benefit from this allowance.
Imagine that you are married and in 2010 you sold a building with a capital gain of 70,000 EUR. Since the allowance is 50.000 EUR per partner imposed collectively, you can benefit from a reduction of 70.000 EUR and thus reduce the gain to 0. You will not be taxed at all.
In addition, you still have 30.000 EUR of allowance which you can use on another real estate capital gain until 2020 (2010 + 10 years). So if you sell another building in 2018 on which you realize a capital gain of 50.000 EUR, you will be able to deduct the remaining 30.000 EUR and you will be taxed on only 20.000 EUR.
Then, from 2020 (ie 2010 when you used the first allowance + 10 years), the counters are reset to 0 and you will again be able to benefit again from an allowance of 50.000 EUR per partner imposed collectively. So, if you sell another building in 2022, you can deduct EUR 50,000 per taxpayer from the realized capital gain.
This decennial allowance is not limited to inheritances but each taxpayer can benefit from it.
The one-off allowance of EUR 75,000 is only valid on the sale of a property acquired by way of inheritance in direct line and used as principal residence by the parents of the transferor!
This allowance is not doubled by taxpaying partner and can only be used once.
If, for example, you inherit a flat in 2015 from your father on which you realize a capital gain of 40.000 EUR and you use the allowance, the remaining 35.000 EUR are lost. If you then inherit in 2018 a house from your mother, on which you realize a capital gain of 80.000 EUR, you will not be able to benefit any more of this abatement, or even of the 35.000 EUR which you have not yet used.
The single allowance of 75,000 is however valid per heir, ie if you are 2 heirs, each of the 2 can benefit from this allowance of 75,000 EUR.
As said before, this allowance can only be used if the property was used as main residence by the parents. So, if you inherit one or more properties that were not used as residence, you cannot use the single allowance but you can of course use the decennial allwance to reduce the taxation on these properties.
Let’s take a concrete example to illustrate all this.
- You are 2 heirs in a direct line of a house inhabited by your parents.
- You decide to sell the house and the capital gain (selling price – revalued acquisition price – acquisition costs) is 300.000 EUR.
- Heir A is married and has not yet used the single allowance, but has already used a decennial allowance 2 years ago, up to 40.000 EUR.
- Heir B is not married and has neither used the single allowance, nor a decennial allowance in the last 10 years.
- The capital gain on the sale of the building is EUR 150,000 per heir (ie capital gain of EUR 300,000 divided by 2 heirs).
Heir A can deduct the single deduction of 75,000 EUR and a decennial allowance of 60,000 EUR (decennial allowance of 50,000 EUR per spouse – 40,000 EUR already used). Hair A will therefore be taxed on a capital gain of 150,000 EUR – 75,000 – 60,000 = 15,000 EUR.
Heir B can deduct the single deduction of 75.000 EUR and a decennial allowance of 50.000 EUR. Heir B will therefore be taxed on a capital gain of 150,000 EUR – 75,000 – 50,000 = 25,000 EUR.
For more details on the tax rate, the revaluation coefficient and concrete calculations, please contact us by e-mail or phone: 585 506.