Luxembourg's residential property market is both attractive and complex for investors. Before embarking on this type of investment, it is important to consider certain key questions to ensure the project runs smoothly.
1. What is the state of the property market?
When you plan to invest in property to live in or rent out, you are bound to consider a host of questions about the type of property (house or flat), location (in the city or periphery towns), your budget, etc. But over and above all these considerations, the main issue is: how attractive is the Luxembourg property market?
With demand outstripping supply, Luxembourg property prices are continuing to rise.
The average house price index rose by nearly 10% between 2018 and 2019 and by a total of more than 50% between 2010 and 2018.
Source: Liser / Observatoire de l'Habitat
Although prices are high, buying property for the medium and long term still appears to be the best option.
Overall, 73% of households own their home.Source: Statec, Fondation Idea
2. What's the tax impact?
It is important not to overlook the costs and tax aspects that can bump up the purchase price. What stamp duty, legal fees and mortgage costs are payable? How is VAT applied to off-plan (‘VEFA’ in Luxembourg) or buy-to-let property purchases?
Our teams are here to analyse all the costs with you at the three key moments for your project: on purchasing the property, on completing your rental income tax return for rented properties, and when you sell the property.
3. What legal formats are available?
The choice between buying direct in your own name or using a property holding company (an ‘SCI’) depends on your objectives, requirements and personal situation. Neither solution is necessarily preferable.
You should take professional advice to help you decide and make the arrangements to set up an SCI if you decide to opt for a holding company. How is an SCI taxed? What circumstances favour an SCI? What are its advantages and disadvantages?
4. What are the financing options?
To finance the property purchase, first you have to decide on the amount of your personal contribution and then choose between a mortgage (guaranteed by the property) or collateral (guaranteed by a portfolio of securities). What are the benefits of each? Will the rent be sufficient to service the debt repayment?
5. What tax is payable on rental income?
Investing in a buy-to-let often raises other tax questions, especially regarding the taxation of rental income.
What is the tax base? How is tax relief calculated? Is there tax relief on land? Can maintenance and repair work on rental properties be deducted?
6. What happens on the death of the property owner?
Inheritance arrangements are critical. What happens when the property owner dies? How is the property divided if there are multiple heirs? Can the property be divided by private arrangement or is there a legal process? If the heirs agree among themselves, can the property be sold on the market or must it be auctioned? What inheritance arrangements should be made in advance?
7. What capital gains tax is payable when a rental property is sold?
Various expenses and taxes are applicable when buying a residential property to let. It is important to know what they are so you can plan for them, especially when it comes to selling the property. Could you benefit from additional tax relief?
Financing your property projects fits naturally within the overall support we offer our clients. As each situation is specific and personal requirements differ, the solutions we propose are always tailor-made for you and take into account all aspects of your project.
Our advisers will assess all the tax, wealth, financial and personal components of your project with you, calling on the support of our tax specialists if necessary, to guide you in your decisions. They are also on hand to support you over the long term – throughout your ownership of the property and when you pass it on.