Luxembourg Redefines Home Energy Tax Credits

by Ulrika Lomas, Tax-News.com, Brussels

20 July 2011

During a recent meeting chaired by Prime Minister Jean-Claude Juncker, Luxembourg’s governing Council approved the bill providing for different fiscal measures designed to encourage energy efficiency improvements in properties.

According to the Luxembourg government, the bill aims “to redefine” the existing tax credit available for property registration fees, which is currently EUR20,000, according to the energy performance of the purchased property. The bill also seeks to enable property owners of older buildings destined for rent (either companies or private individuals) to benefit from an accelerated rate of depreciation of 10% for the first eight years for investment costs linked to energy improvements, after which time the standard rate will apply.

Regarding the tax credit, the government notes that in accordance with the new provisions, tax relief on registration and transcription fees for the purchase of a residential property will in future be linked in part to specific energy performance conditions.

Under the plans, the EUR20,000 tax credit will be divided into two equal parts, each to the value of EUR10,000. Although all property buyers will be entitled to receive the first EUR10,000 tax credit unconditionally, the second tranche of EUR10,000, referred to as the “supplementary energy tax credit”, will be subject to new conditions relating to the energy performance of the purchased property. These conditions, the government explains, vary according to the energy classification.

For properties that have been classified as either class A or class B on the deeds (passive and low energy consumption property respectively), the purchaser will benefit from the supplementary energy tax credit. For properties classified as either class C or D, the purchaser is entitled to the tax credit provided that the property’s energy efficiency is raised to class A or B within three years. In cases where the property has been classified as below class D, the purchaser will be entitled to the additional energy tax credit provided that they carry out the necessary energy efficiency improvements needed to raise the property to class A, B, C or D, again within three years.

Individuals purchasing a property in Luxembourg whose energy performance has not been classified on the deeds have four years to make the necessary improvements so that the property can be classified as either A or B.

The government notes that within the same context, the Council approved during its meeting the grand ducal regulation draft providing for a reduction from 15% to 3% of the value-added tax rate accorded for energy efficiency improvements in the property.

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