Deducting contributions, insurance premiums and interest expense related to a personal loan
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Private insurance contributions and premiums as well as interest expense related to a personal loan (considered as special expenses) are tax deductible under certain conditions.
However, they are deductible only if the contracts are established in the name of the taxpayer or a person with whom he is collectively taxable (spouse, partner or minor child).
Prior to the 2017 fiscal year, the ceiling on interest expense related to a personal credit and the premium and insurance premiums were calculated separately.
Who is concerned
Resident taxpayers as well as assimilated non-residents may deduct from their taxes contributions and insurance premiums paid, as well as interest expense related to a personal credit.
Prerequisites
Deductible interest on a personal loan
The interest paid by the taxpayer is deductible if it is linked to a loan contracted to finance the purchase:
- of a car;
- of furniture for personal use;
- any other type of personal expenses (acquisition of a stock portfolio, of building land, the financing of holidays or funds borrowed and used for the personal lifestyle, etc.).
Taxpayers may also use this deduction for interest payable on their credit cards or bank accounts.
However, interest is not deductible if it is in relation with:
- interest on a loan taken out to finance the acquisition of a personal home or property to be rented; or
- a loan in connection with a merchant or independent activity.
Deductible insurance contributions and premiums,
In order to be deducted, the premiums and contributions must be paid to approved private insurance companies in the Grand Duchy of Luxembourg, or approved and having their registered office in another Member State of the European Union.
Premiums and contributions must relate to an insurance contract concerning one of the following:
- life;
- death;
- single premium (outstanding balance insurance);
- accident;
- bodily injury;
- disability;
- illness;
- civil liability.
Insurance contributions and premiums relating to life insurance policies are only deductible if the contracts have been subscribed for an effective term of at least 10 years.
Contributions and premiums paid to recognised mutual benefit societies are deductible if the contract is for the purpose of providing the family members of the subscribing taxpayer with assistance in the event of:
- illness;
- accident;
- incapacity for work;
- disability;
- unemployment;
- old age;
- death.
Private expenses in connection with comprehensive auto insurance (commonly known as "Casco") are not deductible as private special expenses (SD). This concerns insurance for:
- theft;
- fire;
- glass breakage;
- material damage;
- legal protection.
In principle, contributions and premiums paid should not be financed by a loan.
Single premium linked to an insurance contract
When subscribing a death insurance to guarantee the repayment of a loan relating to the acquisition of a property (called death insurance for outstanding balance), in particular for the acquisition, the construction, the extension, the conversion or restoration of a house or apartment for the taxpayer's personal residence needs, the taxpayer has the possibility to repay the loan in the form of a payment of a single premium.
The payment of a single premium increases the deduction limit for special expenses.
Specific condition for non-resident taxpayers
Married non-resident taxpayers, provided they are eligible, must choose to be taxed as resident taxpayers before being able to deduct from their taxes the premiums paid into a private pension scheme.
How to proceed
Deductible amount
Base amount or normal cap
Contributions, insurance premiums and interest expense related to a personal loan are deductible up to a maximum of EUR 672 in total per year.
Starting from the 2017 fiscal year, this ceiling also takes into account the interest expense related to a personal loan. For the year 2016 included, this ceiling was calculated separately up to a maximum of EUR 336 per year.
This ordinary cap is increased by that specific amount for the spouse/partner (provided they are taxed jointly) and each child who is part of the household.
For example: a married couple or a couple in a civil partnership (who are taxed jointly) with 2 children in their household may deduct up to EUR 672 x 4 = EUR 2,688 per year.
Increase of the single premium
The amount of the deductible ceilings can be increased further to the payment of a single premium in connection with the conclusion of a temporary insurance at death to guarantee the repayment of a loan (outstanding balance).
The amount of the "increase" in the deductible cap is limited to the amount of the single premium, but may not exceed EUR 6,000, increased by EUR 1,200 for each child in the household.
Only the actual costs related to the single premium can be taken into account in the increase.
Additional increase of the single premium
If the taxpayer is over 30 years old when the insurance is taken out, the deductible amount can be increased by 8 % per year over 30 years of age, but can not exceed 160 %.
Only the actual costs related to the single premium can be taken into account in the increase.
Example: A 53-year old taxpayer who is married or in a civil partnership (taxed jointly) with 1 child in their household:
- Normal cap: 3 x EUR 672 = EUR 2,016;
- Increase: EUR 6.000 + EUR 1,200 = EUR 7,200
- Additional increase of 23 times 8 % = 184 %, capped at 160 %: EUR 7,200 X 160 % = EUR 11,520;
- Combined cap of mark-up and increase: EUR 18,720;
- Total deduction cap: EUR 20,736.
Other examples and a table showing the deductible maximum amounts are available in Circular LIR No 111/1 of 2 November 2017 on premiums and insurance contributions.
If an increase has already been granted for the same residence, the increase is reduced by the sum of the increases that were deducted during the previous 5 tax years.
Deduction of premiums, contributions and interest paid
To deduct contributions, and insurance premiums and interest expense related to a personal credit as a special expense (dépenses spéciales - DS):
- resident or non-resident taxpayers treated as residents can submit an income tax return and indicate the amounts paid on page 13 of the income tax return (form 100); or
- resident taxpayers can enter the amounts paid on page 4 of the form 163 R F (annual adjustment) if they do not meet the conditions for filing an income tax return. The request for annual adjustment can also be submitted directly online via MyGuichet.lu by filling out an interactive questionnaire; or
- the resident taxpayer can enter the amounts paid on their tax card during the year. To do so, they have to fill in the amounts paid on page 4 of the 164 R form.
- the married salaried taxpayer or pensioner (resident or non-resident treated as resident) can declare the amounts paid in the application for simulation or individual taxation / RTS rate in order for them to be taken into account when establishing the projected tax rate on their tax card.
Supporting documents
The taxpayer is requested to attach a certificate issued by the insurance company, the mutual fund or the credit institution which certifies that the amount of premiums, contributions or interest paid during the year complies with the legal conditions of deduction.
The Luxembourg Inland Revenue reserves the right to request additional supporting documents as part of the process of verifying any information, statements, applications, declarations, claims or appeals submitted to its offices.
Online services and forms
Who to contact
-
Luxembourg Inland Revenue (ACD)
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please click on the link above to find the competent department.
Related procedures and links
Procedures
Links
Further information
-
Cotisations et primes d’assurance
sur le site de l’Administration des contributions directes
-
Mémento fiscal - Résumé des impôts directs perçus
sur le site de l’Administration des contributions directes (ACD)
Legal references
-
Loi modifiée du 4 décembre 1967
concernant l'impôt sur le revenu
-
Règlement grand-ducal modifié du 7 mars 1969
portant exécution de l'article 111, alinéa 8 numéros 1 et 2 de la loi du 4.12.1967 concernant l'impôt sur le revenu
-
Circulaire LIR n°111/1 du 2 novembre 2017
Dépenses spéciales : primes et cotisations d'assurances - L.I.R. art. 111 - Règlement grand-ducal modifié du 7 mars 1969
