Deducting home purchase savings contributions
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Taxpayers may deduct certain expenses from their taxable income. These expenses include contributions paid under a home purchase savings plan which are tax deductible under certain conditions.
The purpose of a home purchase savings plan is to enable a subscriber to receive a loan on favourable terms for the financing of their personal home, in exchange for the payment of contributions.
The contract must be taken out to finance the construction, acquisition or transformation of an apartment or house used for personal housing needs, including the acquisition price of the land.
Home purchase savings contributions are considered to be special expenses (dépenses spéciales - DS).
Who is concerned
Both resident and non-resident taxpayers treated as resident taxpayers can deduct the home purchase savings contributions as a special expense, including the interest income for the home purchase savings contract.
Prerequisites
Conditions under which contributions paid are deductible
Contributions paid under a home purchase savings plan are deductible only if:
- they are paid into an approved home-purchase savings institution in Luxembourg or another EU Member State (banks, credit institutions and other financial institutions are excluded). Only 3 home purchase savings institutions are currently approved in Luxembourg:
- the home purchase savings contracts were entered into to finance a building used for the taxpayer's personal housing needs (construction, acquisition, transformation of a building or acquisition of land to build a home); and
- their purpose is the financing a main residence.
The highly specific scheme for home ownership savings institutions differs from that of banking and financial institutions. The latter cannot claim the benefit of the legal provisions concerning home savings (111 LIR) for their products.
Savings accounts called "plans d'épargne-logement" (PEL), for example, are not eligible for tax deductions. The terms of this type of savings plans do not fall under the specific conditions referred to in Luxembourg law.
Specific conditions for non-resident taxpayers
Non-resident taxpayers, provided they are eligible, must choose to be taxed as resident taxpayers in order to be able to deduct the savings contributions paid into a home savings-plan from their tax.
Condition of allocation of funds
As of the 2017 tax year, regardless of the date of subscription of the contract, the funds resulting from a cancellation of a home-savings plan or from the granting of the savings at the end of the plan must be used to finance a building used for the taxpayer's personal housing needs (construction, acquisition, transformation of a building or acquisition of land to build a building).
How to proceed
Treatment of home savings contributions
The duration of the contract has exceeded 10 years
If the duration of the home-purchase savings contract has exceeded 10 years, previously deducted contributions remain deductible.
Failing to use the capital received to finance a building used for the taxpayer's personal housing needs (construction, acquisition, transformation of a building or acquisition of land for the purpose of constructing a building), a deduction for special expenses of contributions paid to a home-purchase savings institution is no longer permitted from the tax year following receipt of the capital.
The duration of the contract has not exceeded 10 years
Termination of the contract
The taxpayer who cancels the home savings plan before the 10 years have elapsed (date of the allocation of the funds) cancels the deductible nature of the contributions paid, meaning that the contributions already deducted are considered to be non-deductible.
The taxpayer therefore becomes subject to a corrective taxation, which will be to his disadvantage.
This corrective taxation is applied to all the contributions which have been wrongly deducted.
Moreover, failure to use the capital received to finance a building used for the taxpayer's personal housing needs (construction, acquisition, transformation of a building or acquisition of land for the purpose of constructing a building), a deduction as special expenses of the contributions paid to the home-purchase savings institution is no longer permitted from the tax year following receipt of the capital.
There are, however, certain circumstances which prevent a corrective taxation from taking place and which maintain the right to deduction, such as:
- death;
- incapacity for work, etc.
Allocation of savings
Contributions remain deductible and the taxpayer retains the right to deduction if the savings are used for:
- the acquisition of a dwelling intended to be used for the personal housing needs; or
- the repayment of the loan financing the dwelling intended to be used for the personal housing needs; or
- the restoration of the personal dwelling (roof, windows, bathroom, paintwork, boiler, etc.).
If the duration of the contract has not exceeded 10 years and the saver uses the money received to finance a car or a kitchen:
- the contributions lose their deductible character and a corrective tax to the disadvantage of the employee will be levied; and
- a deduction for special expenses of contributions made to a home-purchase savings institution is no longer allowed from the tax year following receipt of the capital.
Deductible amount
As of 2017, the maximum deductible amount is set according to the age of the youngest of the adult subscribers:
- from 18 to 41 years old: EUR 1,344;
- over the age of 41 years: EUR 672.
The higher deductible amount also applies in the calendar year in which the subscriber turns 41.
This amount can be increased by its own amount for:
- jointly taxable spouses or partners;
- each child for which the taxpayer obtains a tax reduction for children.
Examples:
"A" and "B" are subject to joint taxation. "A" turns 41 during the tax year. "B" is 50 years old. "A" has a home purchase savings plan. They have 3 children for whom they are entitled to a tax reduction.
They can deduct: 5 x 1,344 = EUR 6,720.
"A" and "B" are subject to joint taxation. "A" turns 41 during the tax year. "B" is 50 years old. "B" has a home purchase savings plan. "A" does not. They have 3 children for whom they are entitled to a tax reduction.
They can deduct: 5 x 672 = EUR 3,360.
Deduction of contributions paid
To deduct home purchase savings contributions as special expenses (DS):
- resident or non-resident taxpayers treated as residents can submit an income tax return and indicate the amounts paid on page 14 of the income tax return (form 100); or
- resident taxpayers can enter the amounts paid on page 5 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 5 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 can justify the annual amount of deductible contributions paid during the fiscal year concerned as special expenses (SD) by providing a copy of the annual statement produced by the home purchase savings institution.
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
-
Luxembourg Inland Revenue (ACD)
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please click on the link above to find the competent department.
-
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
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Administration des contributions directes
Site web
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Mémento fiscal - Résumé des impôts directs perçus
sur le site de l'Administration des contributions directes (ACD)
Legal references
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Loi modifiée du 4 décembre 1967
concernant l'impôt sur le revenu
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Circulaire LIR n°111/3 du 23 mai 2017
Dépenses spéciales: cotisations d'épargne-logement – article 111 L.I.R.
