While it is obvious that we invest not primarily in real estate to optimise taxes...
It is possible to significantly minimise the real cost of your acquisition using fiscal measures.
To finance your down payment, or to structure your financing you can contribute to a home savings scheme. This means a deductibility of the contributions up to € 1,344 per person (if you are below 40 years old, otherwise € 672).
If you set aside € 4,032 via your home savings plan considering that you have a child and that you are subject to the marginal tax rate of 41.73% (applicable to an annual income above € 45,897), these € 4,032 will in reality cost you only € 2,349.
The type of purchase
While purchasing off-plan means a higher price per square metre, it can enable you to significantly reduce your registration fees. These are calculated only on the land share of the property (generally representing 35% of the total price in Luxembourg City).
Do not forget that thanks to the Bëllegen Akt, your first home acquisition already benefits of an important deduction in your registration fees (up to € 285,714 for a single and € 571,428 for a couple).
The construction share of an off-plan property is subjected to VAT, this VAT is reduced from 3% to 17% for owner-occupants.
Beware: those registration fees and VAT limitations schemes needs to be repaid if you sell within the first two years.
The mortgage insurance
At the time of purchase, your bank usually requests that you subscribe to a mortgage insurance to cover any risk of death or incapacity. Although a one shot payment of the insurance premium is a very significant additional expense compared to an annual premium one, its real costs are heavily reduced through their deductibility, in most cases entirely.
In general, the single premium only costs you 58% of its price! Unlike an annual premium, a single payment of the premium make it fully deductible.
Adding to low interest rates, these interest deductions generally allow an effective loan rate below 1%! And if your employer applies the interest subsidy, you get € 3,000 extra deductible interests per adults. For a couple with a child, this represents an annual deduction of € 12,000 of mortgage interests!
If you want to simulate your project, Nexvia offers an acquisition costs tool.