The keys to understanding property better.

What a property earns, and what it costs you in tax.

• Taxation of rental income

  In Luxembourg, rent received from letting a property is taxable income. However, tax is charged on the net rental income, after deduction of certain tax-allowable expenses.

  The essentials

  • Interest on a mortgage loan taken out to finance the property may, under certain conditions, be deductible from rental income.
  • Depreciation of the building can reduce taxable income each year.
  • Certain property-related expenses can also be taken into account, such as maintenance costs, certain insurance policies, property tax and charges not recovered from the tenant.
  • Net rental income is added to the owner’s other taxable income and taxed according to their tax situation.
  • Expenses must be supported by evidence in the event of an audit by the tax authorities.

  The team's advice

  Keep all invoices, statements and supporting documents relating to the let property. They document your deductible expenses and make preparing your tax return much easier.

• Depreciation of a let property

  When a property is let in Luxembourg, part of the value of the building may, under certain conditions, be depreciated for tax purposes each year. Depreciation applies to the building, not to the value of the land.

  The essentials

  • Only the part of the price corresponding to the building can be depreciated; the value of the land cannot be depreciated.
  • The depreciation rate depends in particular on the age of the building, its use and the tax rules applicable at the relevant time.
  • Depreciation is a tax-deductible expense that reduces taxable rental income.
  • Specific rules may apply to new buildings, older homes or certain buy-to-let investments.
  • As the tax rules have changed several times, it is important to check the regime that applies to your situation.

  The team's advice

  Before buying a property to let, have your tax adviser confirm the applicable depreciation rate. It can have a significant impact on the net after-tax return.

• Rental yield

  Rental yield measures what a property earns relative to the amount invested. It is a useful indicator for comparing several opportunities, but gross yield alone is not enough: what matters most is the income you actually keep after charges and tax.

  The essentials

  • Gross yield is generally calculated as follows: annual rent ÷ total acquisition cost × 100.
  • For a more realistic view, you need to take into account non-recoverable charges, maintenance costs, insurance, vacancy periods and other property-related expenses.
  • Net yield also depends on how the purchase is financed and on the tax applicable to rental income.
  • Location, rental demand and the rent actually achieved are essential to assessing profitability correctly.
  • A high yield does not necessarily make an investment better: risk, the quality of the property and its potential for capital growth must also be taken into account.

  The team's advice

  Base your calculations on a realistic rent actually achieved in the area, not on an overly optimistic theoretical rent. A cautious estimate gives a far more reliable view of the project’s profitability.

• Capital gains on resale

  Reselling a property that is not your main residence can generate a taxable capital gain in Luxembourg. The tax regime depends in particular on how long you have held the property.

  The essentials

  • The sale of your main residence is in principle exempt, subject to the conditions laid down by the regulations.
  • For a property held for less than 5 years, the gain is treated as a speculative profit and taxed according to the ordinary income tax scale.
  • For a property held for more than 5 years, the gain falls under the regime applicable to long-term property capital gains, with more favourable tax treatment.
  • A tax allowance may apply depending on the taxpayer’s situation and the rules in force.
  • The capital gain calculation takes into account, among other things, the purchase price, certain tax-allowable costs and investments, and the applicable revaluation rules.

  The team's advice

  Before reselling an investment property, have the applicable tax calculated for your situation. The holding period can have a significant impact on the net amount you actually keep after the sale.