Law introducing measures for reviving the construction sector: Commentary
OUR INSIGHTS AT A GLANCE
- On 31 May 2024, a law introducing various measures to revive the construction sector was published.
- The aim of this package of measures is threefold: To strengthen the construction industry and craftmanship in order to maintain jobs in the sector; to increase the supply of housing; and to support people in acquiring or renting accommodation.
- The package includes tax and non-tax measures with short, medium, and long-term effects. Some are limited to 2024, while others are structural.
- We provide hereafter a commentary of the tax measures introduced by the government, including the various Grand-Ducal Regulations and the amendments proposed during the legislative process.
Introduction
On 31 May 2024, a law introducing various measures to revive the construction sector was published (the "Law"). According to the government's communication, these measures are designed to boost the construction sector and facilitate access to housing, by tackling both economic and structural housing problems. The Luxembourg property market is indeed currently at a virtual standstill. These measures concern individuals and the construction industry, as well as investors.
The aim of the first package of measures is threefold: to strengthen the construction industry and craftmanship in order to maintain jobs in the sector; to increase the supply of housing; and to support people in acquiring or renting accommodation. All but one of the measures were announced in the coalition programme of the newly elected government published on 20 November 2023.
The package includes tax and non-tax measures with short, medium, and long-term effects. Hereafter, we detail the tax measures to be introduced. Some are limited to 2024, while others are structural.
The draft law has been rather favourablyreceived, especially by the various Chambers, given the scale of the crisis and the need to take swift action to remedy it.
This article provides a commentary of the tax measures introduced by the government, including the various Grand-Ducal Regulations and the amendments proposed during the legislative process.
Measures applying in 2024
Effective retroactively from 1 January 2024, the following measures will apply for 2024 only:
- Temporary increase of the "Bëllegen Akt" tax credit for individuals
The Law provides that the "Bëllegen Akt" tax credit for the purchase of real estate intended for residential use is increased from 30,000 to 40,000 euros per individual for property acquisitions documented by notarial deeds between 1 January 2024 and 31 December 2024.
The Council of State recalled in its opinion that, since the increase of the "Bëllegen Akt" is only temporary, it will decrease again to 30,000 euros in 2025. As a consequence, if a purchaser does not use all their 40,000 euros tax credit in 2024, the balance available cannot be used for a subsequent acquisition. During the discussion with the deputies, Finance Minister Gilles Roth confirmed the analysis made by the Council of State and therefore confirmed that any surplus tax credit could not be carried over from 2024 to 2025.
- Introduction of a new "Bëllegen Akt" tax credit for investment in rental housing
According to the Law, a new "Bëllegen Akt" tax credit for investment in rental housing is also introduced. The amount of this tax credit is set at 20,000 euros per individual acquirer and applies only to individuals. It is intended solely for sales in future state of completion (Ventes en état future d'achèvement - VEFA) documented by notarial deeds executed between 1 January 2024 and 31 December 2024. This tax credit can be used for several acquisitions during 2024 but the cumulative amount cannot exceed 20,000 euros. As underlined by the Council of State, the scope of this measure is not limited to Luxembourg residents.
The Law sets that to qualify for this new tax credit, the purchaser must undertake to rent out the property for a minimum period of two years1 , except in cases of force majeure, and the property must be effectively occupied within four years following the date of the notarised deed of acquisition. In addition, the purchaser will be required to register the rental agreement with the tax authorities (Administration de l'enregistrement, des domaines et de la TVA - AED). If these conditions are not met, the purchaser will, in principle, be required to reimburse the entire amount of credit granted for the acquisition concerned, increased by legal interests.
Since the new tax credit is introduced in the course of the year, purchasers are allowed to request retroactive application if they go to the relevant tax office to sign a declaration of acceptance setting out the legal conditions.
- Temporary decrease of the tax rate for capital gains
Under Luxembourg tax law, individual taxpayers are taxed on speculative profits on real estate assets (i.e. when the assets are sold within a two-year period following their acquisition) at the marginal rate and, if the real estate assets are sold more than two years after their acquisition, at a rate corresponding to half of the global rate (i.e. average rate resulting from taxation of all the taxpayer's income). These provisions do not apply to the extent that a property sold constitutes the taxpayer's principal residence.
In order to mobilise properties, the Law provides that the tax rate for non-speculative capital gains realised on the sale of built and unbuilt real estate property forming part of the private assets of individuals in 2024 are temporarily reduced to a quarter of the global rate.
For the purpose of determining the temporal applicability of this measure, net income is taxable in the year of disposal of the real estate property, regardless of the date of payment of the sale price. The date the property is realised is the date of the notarial deed, the date of the judicial ruling in lieu thereof or the date of the administrative deed in lieu thereof.
This measure was already applied between 2016 and 2018. At the time, this measure stimulated the supply of building land and housing, and also contributed to an increase in real estate property sales.
As from tax year 2025
To accelerate the incentive effects of the planned quarter-rate measure and to curb speculation, the Law also amends the deadline within which a real estate alienation is considered as speculative and extends it to five years, instead of two currently, as from tax year 2025.
- Fiscal neutralisation of non-speculative capital gains transferred to accommodation used for social rental management or belonging to energy performance class A+
The Law sets up the conditions in respect of a new tax-neutral regime for non-speculative capital gains transferred to specific replacement assets. This measure is an addition to the measures announced in the coalition programme of the government.
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Footnote
1. The purchaser must also undertake to make a written declaration to the tax authorities (AED) in the event of sale or change in use of the property concerned during the two-year period. It must be declared within a three-month period starting on the day of the sale or change in use of the property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.