Luxembourg
14 Boulevard Royal L-2449 Luxembourg
 
Monday to Friday
8.30 am to 5 pm
 
Wallonie - Brussels
Chaussée de La Hulpe, 120 – 1000 Brussels
FLANDERS
Kortrijksesteenweg 218 – 9830 Sint-Martens-Latem
 
Monday to Friday
8.30 am to 4.30 pm

When you are considering investing in a buy-to-let, you need to ask yourself a host of questions about the type of property, its situation, your budget, etc. And don’t forget the fees and tax aspects that will bump up the purchase price. With Anne-Lise Grandjean, Tax Adviser at Banque de Luxembourg, we discuss the tax issues to be taken into account at three key moments: when the property is purchased, when the rental income is declared on your tax return, and when the property is sold.

Purchasing a buy-to-let 

When a property is purchased, certain fees and duties have to be paid. All these on-costs should be taken into account when calculating the cost price of a buy-to-let project. 

  1. Registration and transaction duties amount to 7% of the price of the site and the built portion of the property. If it is off-plan, only the portion actually finished at the time of signing the notarial deed is subject to these duties.  
  2. VAT is applied on purchases of real estate off-plan (in French this is called VEFA – Vente en Etat Futur d’Achèvement) on the unbuilt part. The VAT rate is 17%. The 3% super-reduction is no longer granted for the purchase of an off-plan buy-to-let property.
    For housing units for rental, only building work in former housing units will continue to be able to benefit from this reduced rate, with a VAT savings limit of 50,000 euros per housing unit, which corresponds to an investment of 357,000 euros.
  3. Notary fees include fees for the notary's services and repayment of the notary's disbursements for services and documents necessary for the transaction (land registry, mortgage, surveyor, …) provided by outside sources.  
  4. Mortgage fees: if the buyer takes out a mortgage, he will be required to pay mortgage registration fees amounting to 0.29% of the loan amount.

Tax return for rental income 

Rental income must be declared on a tax return in the same way as other income (wages, income from investments in securities, etc.) and is taxed at the overall tax rate. However, various deductions can reduce the taxable amount of rental income. These are called obtainment expenses. Of these, the two most significant are mortgage interest, which can be deducted in its entirety (with no cap), and amortisation of the construction costs, at a particularly attractive rate for properties less than 6 years old, since these amount to 6% of the acquisition value (including registration duty and VAT if payable) excluding the cost of the land. The way a property purchase is financed is far from being tax neutral. The value of taking out a mortgage should be seriously considered even if the buyer has substantial cash as the possibility of unlimited deduction of mortgage interest on future rental income is a real benefit. If the obtainment costs exceed the rental income received, they can be deducted from the taxable amount of other income in your tax return 

Sale of the property 

When you come to sell, there will be less tax to pay on the realised capital gain if you have owned the property for at least two years. In this case, you can potentially benefit from a capital gain "transfer", calculated by reassessing the purchase value of the property, which reduces the capital gain. You can also benefit from additional tax allowances which amount to around 50,000 euros per spouse, renewable every 10 years. The capital gain calculated in this way will be taxed at half your overall tax rate.

A temporary regime has been put in place to encourage property sales. If the sale takes place between 01/07/2016 and 31/12/2017, the tax rate will be one quarter of your tax rate. If the property is sold within two years, the potential realised capital gain will be considered as "speculative" and taxed at your overall tax rate, without the possibility of revaluation or allowances. 

 

Find out more:

We will soon be publishing further blogs about investing in property. 

 

Subscribe to the monthly newsletter
Receive monthly analyses of the financial markets and news from the Bank.

Check out our latest newsletter Check out our latest newsletter