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The Luxembourg government has introduced new tax measures applicable from 1 January 2017. See what impacts these changes will have on your investments and loans.
Retirement savings plan
The retirement savings plan offered by Banque de Luxembourg is designed to maintain your standard of living in retirement.
Previously, the annual tax-deductible amount was determined according to the individual's age, with the amount ranging from 1,500 euros to 3,200 euros (from age 55).
What has changed
From 2017, the deductible amount is increased to 3,200 euros irrespective of the person's age. By increasing the amount you pay into your retirement savings plan to this new maximum amount, you could benefit from a bigger tax deduction
At maturity, the accumulated savings can now be repaid entirely in capital. Previously, at least 50% of the accumulated savings had to be used to buy an annuity.
The tax payable when the plan matures remains the same as before: i.e. the part paid in capital will be taxed at half your overall tax rate; 50% of the part paid as an annuity will be exempt from tax and 50% will be subject to tax at your overall rate.
A home savings plan offers certain tax breaks when you save for the purchase or renovation of your main home.
What has changed
The maximum amount of tax-deductible contributions has been increased from 672 euros to 1,344 euros for taxpayers under the age of 40. For those over the age of 40, the maximum continues to be 672 euros per annum.
Mortgage to finance the main home
In addition to abolition of the deemed rental value of your main home, the tax reform provides for an increase in the ceilings for mortgage interest deductions.
What has changed
Ceilings for mortgage interest deductions have been increased from:
- 1,500 to 2,000 euros for the first year of occupation and the following 5 years
- 1,125 to 1,500 euros for each of the next 5 years
- 750 to 1,000 euros for each year thereafter
Debit interest and life insurance premiums
Deductions for debit interest (other than for mortgages) and life insurance premiums are now grouped under the same heading, with a maximum deductible amount per family member of 672 euros.
Withholding tax on interest income
In addition to these measures, the government has increased the withholding tax on interest income from 10% to 20%. This includes interest on savings accounts, term deposit accounts and bonds.
Remember that a simple way of optimising your portfolio is to invest in accumulation funds.
Capital gains on property
We would also remind you that the favourable tax regime on capital gains when you sell a property (other than your main residence) will cease on 31 December 2017. So there is still time to benefit this year from the reduced level of tax at a quarter of the overall tax rate (instead of half the overall tax rate).
Tax evasion and regularisation
The reform also defines different degrees of tax evasion and the applicable sanctions and penalties. Aggravated tax fraud and tax evasion will be treated as a predicate offence to money laundering.
The temporary tax regularisation rules will continue to apply until 31 December 2017.
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