Future homeowners can write off thousands of euros from their tax bill using a special scheme, called the home purchase savings plan, with the funds becoming available to purchase and rehabilitate a property.
“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,” according to the government’s Guichet.lu information portal. “Their purpose is the financing [of] a main residence.”
Several rules and conditions apply. Firstly, savers need to sign a ten-year contract fixing the amount they will contribute to the plan each month. If the account is closed before the ten years is up, or if the savings are spent on unauthorised expenses, in most cases “the contributions lose their deductible character and a corrective tax to the disadvantage” of the taxpayer is imposed, says Guichet.lu. (Punitive taxation does not apply in cases of death and permanent disability.) “This corrective taxation is applied” retrospectively to all previous tax years that the saver wrote off the plan.
There are only three financial institutions in Luxembourg authorised to offer the home savings scheme (see below). However, many retail lenders resell the product to their clients, including the BCEE state savings bank, Banque Internationale à Luxembourg, BGL BNP Paribas, ING and Banque Raiffeisen.
“This product combines a saving scheme for the first period of the contract and a fixed interest rate loan defined at the time of the signature of the contract,” states Markus Stegmann, commercial director credits, retail banking, BGL BNP Paribas, which resells the Bausparkasse Schwäbisch Hall plan. “The client has a long-term visibility on his future home project combined with an interesting fiscal advantage.”
“The home savings scheme is used to build up capital that can be used to buy, build or renovate a house or flat you live in or are going to live in,” a spokeswoman for Banque Raiffeisen, which also resells Bausparkasse Schwäbisch Hall accounts, told Delano. In addition, the savings can be used to purchase land to build a home, refinance a personal home loan and for home repairs, such as fixing the roof, windows, bathroom and heating system, per Guichet.lu. Some expenses, such as kitchen refreshes, do not qualify.
Bankers say the home savings scheme is popular with their customers. “Our clients see this product as an interesting fiscal optimisation tool to invest in future home projects,” says Stegmann. He reckons the scheme is a good option for two different types of savers.
“The first target is clients who want to start saving for their future home. They benefit today from an interesting saving interest rate and a predetermined fixed interest rate. It’s a safe alternative for a regular saving account as long as the client can benefit from the fiscal advantages,” he notes. “The second group are those who are requesting a home loan today from their bank. The bank can structure the home loan by embedding a home-saving scheme in their contract in order to benefit from further fiscal advantages.”
How much can you save?
“The deposits made on this account can be deducted from taxable income up to a maximum threshold,” according to the Banque Raiffeisen spokeswoman. Taxpayers aged 18 to 41 can write off €1,344; the figure is €672 for those 42 and older, explains Guichet.lu. The same amount can be deducted for “jointly taxable spouses or partners” and “each child for which the taxpayer obtains a tax reduction for children.” Taxpayers should list the amount in the special expenses (dépenses spéciales or DS) section on their annual tax declarations.
There are other requirements, so check with a financial professional to be sure that you understand how the scheme works.
Home purchase savings plans
Contributions to and interest income from 3 authorised home savings schemes can be tax deductible:
Home purchase savings plans are not the same thing as the type of savings accounts called “plans d’épargne-logement” (PEL) that are offered in other European countries. PEL savings are not tax deductible in Luxembourg. So check with a local institution.