Real estate investment in Luxembourg or abroad

Invest in real estate in Luxembourg

Currently, interest rates on savings accounts are extremely low. Inflation on the euro money market is higher than the interest yield.

Among the solutions available to diversify your investments, investing in rental properties offers a whole range of benefits. Historically, Luxembourg real estate has increased in value every year.
If you’re looking to invest your cash somewhere, one option worth considering is investing in real estate.

With this solution, you’ll be able to:

• build up your assets, which can be passed on to your descendants
• generate additional and regular income if you rent your property out over the long term
• potentially realise a (taxable) capital gain when you sell your property a few years later, which can then be reinvested in real estate⁽¹⁾.

Is investing in real estate in Luxembourg a good idea?

The return on a real estate investment depends on a variety of factors:

• the purchase price
• the type of property (apartment / house, new, old or renovated)
• its location
• average rents charged for these types of property
• your tax rate.

Although Luxembourg’s high property prices eat into returns, investing in property is still an attractive option:

• the return on investment is higher than traditional savings plans, for which rates are currently at a record low
• you can expect to realise capital gains ⁽¹⁾.  In fact, growth in house prices is currently stronger in Luxembourg (up 4.9% per year on average since 2010, according to Eurostat) than in the other countries in the European Union (up 1.8%)⁽³⁾
• considering the strong demand for housing, the risk of a property remaining vacant between two tenants is relatively low in Luxembourg
• purchase costs and property taxes are relatively low compared to neighbouring countries
• you can take advantage of the various schemes in place in Luxembourg regarding property taxation (deduction of debit interest on a loan, depreciation, etc.).⁽²⁾

Good to know

Notary fees are also lower for the purchase of a new build in Luxembourg.

What are the tax impacts of rental property investing?

As a Luxembourg tax resident or equivalent, your rental income or capital gains⁽¹⁾ must be declared on your income tax return. You will be taxed in Luxembourg on the rent received for a property in Luxembourg during the tax year.

For properties located abroad, you’ll pay tax in the country in question. However, any rental income from other properties abroad will be taken into account to calculate your tax rate in Luxembourg. The tax rate thus obtained is applied to taxable income in Luxembourg (progressive method).

Depreciation

As a Luxembourg tax resident or equivalent, the depreciation of your property may allow you to reduce your taxable income base.
Depreciation is calculated based on the property’s purchase or construction price (excluding land costs) plus any registration fees and VAT.

The purchase price and any added costs constitute the total cost of the acquisition. Post-purchase costs are also added to this total.
If the value of the land is unknown, unless otherwise stipulated, it’s possible to value it at 20% of the cost to acquire the building.

Tip

Where buildings are to be used as rental properties, the situation now depends on the purchase date. Specifically, it depends on whether the building was purchased before or after 1 January 2021.

Residential buildings purchased (or constructed) before 1 January 2021

• if constructed < 6 years ago: 6%
• if constructed between 6 and 60 years ago: 2%
• if constructed > 60 years ago: 3%

Residential buildings purchased (or constructed) after 1 January 2021

• if constructed < 5 years ago: 4% + additional tax allowance of 1% up to EUR 10,000 (doubled for couples subject to joint taxation)
• if constructed between 5 and 60 years ago: 2%
• if constructed > 60 years ago: 3%

What’s more, in both cases, any energy retrofitting carried out on buildings intended for use as rental properties, and for which the Ministry of the Environment has provided a grant, qualifies for a depreciation rate of 6% for 10 years.

Costs of obtaining and generating income from the property (deductible expenses)

As a Luxembourg tax resident or equivalent, you can deduct the actual costs of generating your rental income.

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.

Investing in a rental property therefore offers a whole range of advantages. However, it’s important to remember that markets can also decline. 
Also consider that the property could remain vacant for some time. You should ensure that you’ll be able to make timely mortgage payments regardless.

What are my options for financing a rental property?

Depending on the purpose of your investment, your BGL BNP Paribas advisor will help you identify the financing solution best suited to your property goals^(4).
For a rental investment, there are all kinds of financing options available^(4). For greater flexibility, you can choose from the following options:

• variable rate loan: repay the loan early at any time, with no penalties
• non-amortised loan: only pay the capital back at the end of the loan term. You only make interest payments. In this case, you must have assets available that the bank can use as collateral if necessary, to ensure that the loan can be repaid on its final due date.

BGL BNP Paribas is also able to offer personalised loans, suited to your situation.
The bank endeavours to provide an answer within the requested time, wherever possible. We make every effort to help you take advantage of opportunities as they arise.

Good to know

The bank will ask you for a deposit in order to invest in rental property.

Finance your real estate investment with support from our experts.

Diversifying your portfolio takes time, and requires a broad spectrum of knowledge and expertise.
Our BGL BNP Paribas experts are here to advise you and help find a personalised solution, perfectly suited to your needs.

Do you want to buy a secondary residence?

Planning the purchase, conditions and financing solutions... We’ve got the answers!

⁽¹⁾ Capital gains generated by the sale of properties that aren’t the main residence are taxed at the full rate for any sale within two years, and at half of the overall rate for sales more than two years after purchase. As a rule, property sales are taxed in the countries where the building is located.
⁽²⁾ Tax deductibility varies based on the personal situation of each client and is subject to change.
⁽³⁾ Source: Nexvia.
⁽⁴⁾ Offer subject to terms and conditions and approval of your application by the bank.