INVEST IN REAL ESTATE IN LUXEMBOURG
In recent times, interest rates on savings accounts have grown awfully small. Also, the interest yield on the euro money market is lower than inflation.
A lot of businessmen and investors have been on the search for diversification to mitigate the effects of inflation, and given the financial dynamism of Luxembourg real estate market in the past years, investing in rental properties presents a wide array of returns.
Reliable records have also proven that Luxembourg real estate value has been on the rise annually and if you are sincerely thinking of excellent choices of diversification, real estate is worthy of consideration.
If you have chosen this awesome option, you will have the privilege to:
- develop assets, these can be inherited by your children and other dependents.
- when your property is on lease or rent for a long period of time, you make extra and steady revenue.
- You will also have the chance to put your property up for sale after some years, you might make capital gains which can be put into another round of real estate investment.
Why is Luxembourg real estate investment market still profitable ?
There are several factors that affect the profits on real estate investment:
- The buying prices.
- The nature of the property.
- Where the property is located.
- The standard rent on this kind of property.
- Tax percentage.
Even though the property prices are as high as the returns, considering the pros and cons carefully, it is still a viable option because:
- Traditional saving plans are at their all-time lowest and therefore cannot measure up to the profit from investment in real estate.
- Capital gains can definitely be anticipated, as a matter of fact, house prices in Luxembourg has gone up 4.9% annually since 2010, so upper than in other nations of the EU.
- There is a high demand for houses, both for rent and outright purchase, so much it will only take a short while between when a tenant vacates a property and another seeks it.
- In comparison with other countries around, cost of houses and property taxes are relatively low in Luxembourg.
Various policies have been put in place in Luxembourg with respect to property taxation such as deduction of debit interest on a loan, depreciation, etc. You can take advantage of this and become a real estate investor.
TAX IMPACTS OF INVESTING IN RENTAL PROPERTY
If you are a tax resident or its equivalent in Luxembourg, you must file your rental income or capital gains on your income tax return. The tax in Luxembourg is deducted from rent realized on a property for the tax year.
And for properties outside the country, taxes will be deducted according to the tax laws of that particular country. However, any rent received from properties outside the country will be factored into the final calculations for your tax percentage in Luxembourg. Thus, the tax rate is utilized for taxable earnings.
DEVALUATION
For tax residents or similar entities in Luxembourg, there is room for reduction in taxable income base if there is a verifiable devaluation of their property. Devaluation is determined based on the price at which the property was acquired or the total cost of construction and any other fees for registration and VAT leaving out costs of purchasing the land.
The total cost of acquisition is calculated by adding the cost of purchase, other additional costs and post-purchase costs. Except situations where it is stipulated, sometimes the value of the land might not be known, it is estimated to be around 20% of the total cost of acquiring the building.
IMPORTANT TO NOTE THAT:
Buildings intended for rental purposes now depends on the date of purchase. Precisely, it depends on whether the property was acquired before or after January 1, 2021.
Residential buildings purchased (or constructed) before 1 January 2021
If it was built < 6 years ago: 6%
if it was built between 6 and 60 years ago: 2%
if it was built > 60 years ago: 3%
Residential buildings acquired or erected after 1 January 2021
if it was built < 5 years ago: 4% + additional tax allowance of 1% up to EUR 10,000 (doubled for couples subject to joint taxation)
if it was built between 5 and 60 years ago: 2%
if it was built > 60 years ago: 3%
Additionally, in all cases, the property can qualify for a devaluation rate of 6% for 10 years if there has been any energy retrofitting or renovation done on the building with intentions of using it for rental purposes after a grant has been made available by the Ministry of Environment.
HOW MUCH IS NEEDED TO ACQUIRE AND MAKE PROFITS FROM YOUR LUXEMBOURG PROPERTY?
As a tax resident in Luxembourg, you can deduct the actual costs of generating rental income by yourself.
These include:
- All debit interest on the home loan for the buy-to-let property.
- Financing costs: one-off fee, mortgage registration deed, costs of processing the file.
- Land tax and municipal tax.
- Upkeep and repairs.
- Insurance premiums, such as civil liability, fire, etc.
There are a whole lot of benefits from investing in a rental property. But it is pertinent to note that markets also regress. Do not forget that there is a possibility that the property remains vacant for a while. You should also make sure that your mortgage payments are made early notwithstanding.
ALTERNATIVES FOR FINANCING A RENTAL PROPERTY
Consulting your Damalion expert will afford you the opportunity of selecting the appropriate financing option for your property targets depending on your principle of investment.
There are various financing solutions available which has better flexibility for your rental investment, you can select from the options such as:
- Variable Rate Loan: This allows you to repay the loan promptly even before the time stipulated without penalties.
- Non-amortised loan: You can repay just the capital back at the end of the loan period. Interest payments can be made in this case but there must be assets which will serve as collateral so as to ensure the loan is repaid on or before its final due date.
DAMALION can also facilitate and assist you to get customized loans, well-matched for your circumstances. Our partner bank tries to provide an answer within the demanded time, wherever possible. We make sure there is sufficient assistance so you can take advantage of chances as they come.
Please note:
You will be required to make a deposit in order to invest in rental property by the bank.
Damalion works with a qualified and accredited network of real estate professionals in Luxembourg. We help our clients identify real estate opportunities that match their investment criteria. In addition, we help them implement the right investment vehicles to bring operational excellence and taxation advantages to their investments.
