LUXEMBOURG: An Introduction to Real Estate

Luxembourg: Recent Legal Developments in Real Estate 

Introduction 

The Luxembourg legislators and administration have introduced several legislative changes impacting the real estate industry in Luxembourg, and further legal initiatives have been announced in draft bills. The Luxembourg Constitutional Court also issued an important decision. 

Recent Changes in Laws and Regulations 

New tax measures  

Package of measures to revitalise the housing market – indirect taxation 

With the introduction of the Law of 16 May 2023, amending the Law of 30 July 2002 on various tax measures to encourage the marketing and acquisition of building land and residential property, as amended, the amount of the tax credit (Bëllegen Akt) was increased from EUR20,000 to EUR30,000 for each purchaser. 

This tax credit is temporarily increased to EUR40,000 per person (or EUR80,000 per purchasing couple) for all deeds signed in 2024. 

In principle, it will fall back to EUR30,000 (ie, EUR60,000 per purchasing couple) in 2025, barring renewal measures. 

Currently, the standard rate for real estate acquisitions (house, apartment, building plot) is 7%, 6% for registration fees and 1% for transcription fees. 

As regards the tax base, when a purchaser-investor acquires a property intended as a tenant’s main residence, the tax base is reduced by 50%, subject to certain conditions, including the submission of a request for the 50% reduction, which must be contained in the deed of acquisition signed before a notary. This measure applies to deeds notarised between 1 October 2024 and 30 June 2025. 

Other measures aiming to boost the Luxembourg real estate market – direct taxation 

Prior to 1 January 2025, for direct tax purposes, the sale or transfer of a privately-owned property was, in principle, taxed as miscellaneous income as disposal profits and benefited from the half-rate if the property in question had been held for more than two years. 

From 1 January 2025, the above-mentioned holding period has been increased from two to five years.  

Additionally, as of the 2024 tax year, the amount of deductible debt interest for the acquisition of a principal residence occupied for less than six years is no longer capped. 

Potential extension of certain measures  

Exceptional tax measures to revitalise the housing market should be extended to the end of June 2025 if Bill 8470 is passed. 

The main measures are: 

• further increase in Bëllegen Akt tax credit to EUR40,000 per person;  
• return of the rental tax credit up to EUR20,000 per person;  
• application of the quarterly overall rate for real estate capital gains taxed in the miscellaneous income category as disposal profits; and 
• return of the “special construction allowance” for new homes.

The “special construction allowance” is an additional 4% depreciation (on top of the current 2%, for a total of 6%), applicable in the year of completion and the following six years. This allowance applies to the purchase of a VEFA property (as defined below). The amount of this allowance is capped at EUR250,000. 

Amendment of residential lease rules 

By the Law of 23 July 2024, Luxembourg amended several points of the legal regime applicable to residential leases. 

According to the parliamentary documents, the text aims to protect tenants against unfair rents by bringing more transparency into the landlord/tenant relationship, by regulating shared rentals and encouraging “investors to return to the real estate market” to “meet the growing demand for housing”. 

The main new features can be summarised as follows. 

Obligation to document the lease agreement in writing 

Since the Law came into force (1 August 2024), all residential lease agreements must, on pain of nullity, be documented in writing and contain a certain number of mandatory mentions specified in the Law. 

New rent increase framework 

The “annual thirds” rule that previously governed rent increases has been repealed. Rent increases may now not exceed 10% of the agreed monthly rent over a two-year reference period. 

The Luxembourg government has indicated that it will soon introduce another bill to overhaul the current rent cap mechanism. 

Disappearance of the concept of “luxury housing” 

The concept of “luxury housing” has also been abolished. This referred to housing “with modern, non-standard comforts” and for which the monthly rent exceeded EUR269, the value of the 1 January 1948 weighted cost-of-living index, expressed as 100. 

Qualification as “luxury housing” made it possible to exclude the application of a certain number of provisions of the law aimed at specifically protecting the tenant (rent ceilings, in particular). 

Rental guarantee  

The maximum amount of the rental guarantee to be paid by the tenant has been lowered from three to two months' rent, legislators considering that this sum is generally sufficient to guarantee the tenant’s obligations under the lease. 

At the end of the lease, the landlord is now subject to strict deadlines for returning the guarantee: 

• 50% of the security deposit must be returned to the tenant within one month of receiving the keys, except in the case of rent arrears or damage noted at the departure inventory; and
• the remaining balance must be paid within one month of receipt of the final statement of charges. 

Failure or delay on the part of the landlord in returning the rental guarantee may give rise to a penalty of 10% of the rent for each month’s delay. 

Sharing of intermediary fees  

Commissions paid to intermediaries (real estate agents or other third parties) in connection with the rental of a property are to be shared equally between the tenant(s) and the landlord, any clause to the contrary in the lease being automatically deemed unwritten.  

Introduction of a specific regime for shared rentals  

Lastly, the Law introduces a new regime for shared rentals, defined as “the rental of the same dwelling by several tenants, called co-tenants, who opt, with the express agreement of the landlord, for the application of rules specific to shared rental”. 

This regime, which presupposes the express agreement of the landlord and the co-tenants, has a number of specific rules, such as the establishment of a co-tenancy agreement specifying the various obligations applicable between co-tenants and the means for simultaneous termination by some or all of the co-tenants of the co-tenancy lease. 

Read the full article, including Bills Currently in Process and Recent Case Law, at: Recent legal developments in Real Estate | DSM Avocats à la Cour | Luxembourg