What exactly has been presented?

Two bills were unveiled on Friday 7 October by interior minister  (LSAP), finance minister  (DP), and housing minister  (Déi Gréng). The first of these included the reform of the property tax (IFON) but also the creation of two new taxes: the land mobilisation tax (IMOB) and the tax on non-occupation of dwellings (INOL). The latter are the real key elements of this text, aimed at combatting the housing crisis that affects Luxembourg. The second piece of legislation provides for the creation of a national register of buildings and dwellings (RNBL).

What are the changes in property tax?

The property tax, in its current form, is one of the oldest taxes in Luxembourg. What is now being presented is essentially a revised version of this legislation. From now on, it will be a simple multiplication between a base value representing the building potential of a plot of land (and no longer an evaluation dating from 1941 as was the case) and a tax rate set by the municipality in which the land is located.

Another new feature is the introduction of an allowance of €2,000 euros for people who own their own home. In order to allow citizens to estimate the amount of their property tax,  has already been made available.

Will the new property tax bring in more?

"The aim of this reform is not to generate additional tax revenue but to eliminate the fundamental injustices of the current system," explained Bofferding. According to the projections presented on Friday, the revenue from property tax should increase from €39.1m in 2021 to an estimated €39m to €47m per year (depending on the rates chosen by the municipalities) once the law is approved.

The IFON should remain an untapped potential in terms of tax revenue. As a reminder, in 2021, it represented only 0.1% of Luxembourg's GDP. While the European average was 1.5%.

It should be noted that these revenues will always accrue to the municipalities, IFON being a tax levied by the latter for "all built or unbuilt properties of legal and natural persons, irrespective of their contributory capacity, the use made of these properties or the means of financing used to acquire them".

How much it costs to mobilise a plot of land?

The main aim of this reform, apart from the revision of the property tax, is to fight against the housing shortage in Luxembourg. To this end, this bill introduces a land mobilisation tax (IMOB), whose mission will be to encourage construction.

The principle is simple: you have five years to start a construction project on your serviced land (the deadline rises to eight years if it is not yet serviced). If you fail to do so, you will have to pay the IMOB.

The IMOB is calculated in the same way as the IFON, with the base value of the land multiplied but progressive rate over time. The rate slopes gently at first, before rising to 900% after 20 years. The legislation makes possible a flat-rate deduction for each child below the age of 25.

How much could the non-occupation of an accommodation cost?

While the land mobilisation tax encourages the creation of housing, the new national tax on the non-occupation of housing (INOL) deals with existing but unoccupied housing. It replaces the municipal tax on housing, which was introduced in 2008 in the Housing Pact 1.0 and, in practice, was hardly used by the municipalities.

A dwelling will be considered unoccupied if no natural person is registered in the national register of natural persons for a period of six consecutive months. The municipality may also verify the non-occupancy in certain cases set out in the bill.

In concrete terms, this tax will amount to €3,000 per dwelling for the first year of non-occupancy. This will then increase by €900 per year, up to a ceiling of €7,500 per year.

Are the measures taken sufficient?

This is a question that can be asked in view of the figures mentioned above and also in view of some concrete examples given at the press conference. One might even wonder whether the government has hit the wrong target. Indeed, while the amounts mentioned may be of a level that could cause a lot of concern to the middle classes, they are certainly much less dissuasive for many players in the Luxembourg property market, starting with the country's major developers.

When asked about this, the ministers who presented the bill explained: “The amounts are not so high, it's true. But it is important to bear in mind that this property tax reform and the two new taxes presented are only one element in a growing array of legislative instruments to combat property retention. There is the 'Baulandvertrag' bill, the Housing Pact 2.0, etc. And these are binding instruments. This is a very important factor.”

Who gets the revenue from these two new taxes?

Syvicol, the union of towns and municipalities, would have liked to see the revenues from IMOB and INOL go back to the municipalities. In the end, this will not happen. The state will collect them and, according to Bofferding, should use them to create new housing.

According to the simulations presented, the IMOB should bring in €4m after five years, €57m after 10 years, €222m after 15 years and €273 after two decades.

For INOL, the revenue is expected to be around €14m per year.

How will the national building and housing register be set up?

The collection of the tax on non-occupancy of dwellings requires the creation of a national register of buildings and dwellings. A unique identification number will be given to all types of buildings and each housing unit.

"The identifications will be carried out by the land registry and the municipalities", explained Kox. He added that he expected the register to take three years to be establish.

When will these two bills come into force?

The government hopes that the bills, which have just been tabled, can be passed in 2023. But nothing is certain. Bofferding recalled that "the bill on the 'Baulandvertrag', which also aims to curb real estate speculation, was tabled by (LSAP) in 2017 and has still not been voted on today." This raises the question of the 2023 parliamentary elections and a possible change of majority in the leadership.

In the meantime, it already seems clear that after a possible vote, it would take another two years before these bills actually come into force. 

This story was first published in French on . It has been translated and edited for Delano.