Do you pay capital gains Luxembourg?

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Everything you need to know before buying real estate is included in our Luxembourg Property Pack

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INVESTROPA

A team specialized in real estate investing in European countries

We are a team of financial experts, legal professionals, developers, and local real estate specialists dedicated to helping people like you avoid mistakes when investing in real estate in a foreign place, particularly in Luxembourg. If you'd like to learn more about us, you can check our presentation page.

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At Investropa, we explore the Luxembourg real estate market every day. Our team doesn't just analyze data from a distance—we're actively engaging with local realtors, investors, and property managers in cities like Luxembourg City, Esch-sur-Alzette, and Differdange. This hands-on approach allows us to gain a deep understanding of the market from the inside out.

These observations are originally based on what we've learned through these conversations and our observations. But it was not enough. To back them up, we also needed to rely on trusted resources

We prioritize accuracy and authority. Trends lacking solid data or expert validation were excluded.

Trustworthiness is central to our work. Every source and citation is clearly listed, ensuring transparency. A writing AI-powered tool was used solely to refine readability and engagement.

To make the information accessible, our team designed custom infographics that clarify key points. We hope you will like them! All illustrations and media were created in-house and added manually.

Are capital gains actually taxed in Luxembourg if I sell real estate or other investments?

Yes, capital gains are taxed in Luxembourg for both real estate and other investments, but the taxation varies significantly based on the type of asset and holding period.

For Luxembourg real estate investments, capital gains are subject to taxation unless you're selling your main residence, which enjoys full exemption. Investment properties and second homes generate taxable capital gains when sold, with rates depending on how long you've owned the property.

The Luxembourg tax system distinguishes between short-term speculation gains (taxed at progressive income tax rates up to 45.78%) and long-term capital gains (taxed at reduced rates after specific holding periods). This structure encourages longer-term property investments while discouraging quick speculative trading.

As of September 2025, Luxembourg maintains strict enforcement of capital gains taxation on property transactions, making it essential for investors to factor these costs into their return calculations.

How long do I need to hold a property before it qualifies as tax-free or reduced-tax capital gains in Luxembourg?

The holding period for reduced capital gains taxation on Luxembourg investment properties is five years, effective for sales in 2025 and beyond.

If you sell an investment property within five years of purchase, you'll pay the full progressive income tax rate on your capital gains, which can reach up to 45.78% including solidarity surcharges. This applies to any property that isn't your main residence.

After holding the property for more than five years, you qualify for a reduced tax rate of approximately 22.89% (half the marginal tax rate). For a limited time between July 1 and September 30, 2025, there's an even more favorable rate of about 11.45% (quarter of the marginal tax rate) for qualifying transactions.

Your main residence enjoys immediate tax exemption regardless of holding period, making it the most tax-efficient property ownership option in Luxembourg. This five-year threshold represents a significant change from previous rules and reflects Luxembourg's policy to encourage stable, long-term property investment.

What's the tax rate on short-term capital gains if I sell property within five years of buying it?

Short-term capital gains from Luxembourg property sales within five years are taxed at progressive personal income tax rates, reaching up to 45.78% including solidarity surcharges.

The exact rate depends on your total taxable income for the year, as capital gains are added to your regular income and taxed accordingly. Lower-income investors might pay around 14-20% on their gains, while high earners face the maximum rate of 45.78%.

This high taxation rate on short-term property gains serves as Luxembourg's mechanism to discourage property speculation and quick flipping. The government wants to promote stable housing markets rather than rapid turnover that can drive up prices for residents.

For example, if you purchase an investment apartment for €500,000 and sell it for €600,000 after three years, your €100,000 capital gain could face taxation up to €45,780, significantly reducing your net profit.

It's something we develop in our Luxembourg property pack.

What's the tax rate on long-term capital gains if I hold property for more than five years?

Long-term capital gains from Luxembourg property held for more than five years are taxed at approximately 22.89%, which represents half the maximum marginal tax rate.

This reduced rate applies to the net capital gain after deducting allowable costs and exemptions. The 22.89% rate assumes you're in the highest tax bracket; investors in lower brackets pay proportionally less on their long-term gains.

Between July 1 and September 30, 2025, Luxembourg offers a special temporary reduction where long-term capital gains are taxed at just 11.45% (quarter of the marginal rate) if the notarial deed is executed during this period. This temporary measure provides exceptional tax savings for qualifying sales.

Additionally, long-term property sales benefit from inflation indexing, where your original purchase price is adjusted upward based on Luxembourg's consumer price index. This indexing reduces your taxable gain and can result in substantial tax savings, especially for properties held for many years during inflationary periods.

Are there different rules for real estate compared to stocks or other financial assets in Luxembourg?

Yes, Luxembourg applies significantly different capital gains rules for real estate versus financial assets like stocks and bonds.

Asset Type	Short-term Threshold	Long-term Benefits	Special Exemptions
Real Estate (Investment)	5 years	Half tax rate + indexing	€50,000 per decade + main residence exempt
Stocks (<10% stake)	6 months	Completely tax-free	€500 annual allowance for short-term gains
Stocks (≥10% stake)	6 months	Half tax rate	Participation exemption possible
Bonds & Other Securities	6 months	Tax-free if <10% stake	€500 annual allowance
Main Residence	No threshold	Always tax-free	Complete exemption

Real estate requires a five-year holding period for preferential treatment, while financial assets need only six months. However, small shareholdings in companies (under 10%) become completely tax-free after six months, whereas real estate always faces some taxation unless it's your main residence.

The calculation methods also differ substantially. Real estate gains benefit from inflation indexing and substantial cost deductions, while financial asset gains are calculated more straightforwardly based on purchase and sale prices.

Do residents and non-residents face the same capital gains tax rules in Luxembourg?

Luxembourg residents and non-residents face identical capital gains tax rules for Luxembourg-located real estate, with both groups subject to the same rates, holding periods, and exemptions.

Non-residents must pay Luxembourg capital gains tax on any property located within Luxembourg's borders, regardless of their tax residence elsewhere. This includes apartments, houses, commercial buildings, and land located in Luxembourg.

Both resident and non-resident investors can claim the same €50,000 exemption once every ten years, benefit from inflation indexing on long-term holdings, and access the reduced tax rates for properties held over five years. The main residence exemption also applies equally to both groups.

However, non-residents typically don't face Luxembourg taxation on capital gains from assets located outside Luxembourg, whereas residents may be taxed on their worldwide capital gains depending on tax treaties and specific circumstances.

Double taxation treaties between Luxembourg and other countries often provide relief for non-residents, ensuring they don't pay tax twice on the same property gain.

What allowances, deductions, or exemptions can reduce my capital gains tax in Luxembourg?

Luxembourg offers several significant allowances and deductions that can substantially reduce or eliminate your capital gains tax liability on property sales.

The primary exemption is €50,000 per individual (€100,000 for married couples filing jointly) that can be claimed once every ten years on property capital gains. This exemption alone can eliminate taxation on smaller gains or significantly reduce tax on larger profits.

For inherited property received through direct line inheritance (parents, grandparents, children), you can claim an additional €75,000 deduction on top of the standard exemption. This makes inherited property particularly tax-efficient to sell.

Inflation indexing applies to properties held for more than five years, where your original purchase price is adjusted upward based on Luxembourg's consumer price index movements. During periods of significant inflation, this can reduce your taxable gain by thousands of euros.

You can also deduct all legitimate costs associated with the property acquisition and sale, including notary fees, registration taxes, legal fees, agent commissions, and documented improvement costs. These deductions are calculated from the gross gain before applying exemptions.

It's something we develop in our Luxembourg property pack.

How do I calculate the taxable gain—do I deduct acquisition costs, improvements, or notary fees?

The taxable capital gain calculation in Luxembourg follows a specific formula that allows comprehensive deduction of legitimate costs associated with property ownership.

The basic calculation is: Taxable Gain = Sale Price - (Acquisition Price + Acquisition Costs + Documented Improvements + Selling Costs). This approach ensures you're only taxed on your true economic profit from the property investment.

Deductible acquisition costs include the original purchase price, notary fees, registration taxes, legal fees, surveyor costs, and real estate agent commissions from the purchase. All these costs reduce your taxable gain dollar-for-dollar.

Documented improvements that increase the property's value can also be deducted, including renovations, extensions, new heating systems, kitchen upgrades, and structural improvements. You must maintain receipts and documentation proving these expenditures and their property enhancement value.

Selling costs such as real estate agent commissions, legal fees, advertising costs, and notary fees for the sale transaction are also deductible. For properties held over five years, the acquisition price is indexed for inflation, further reducing the taxable gain.

After calculating the net gain, you can apply the €50,000 personal exemption and any additional allowances before determining the final taxable amount.

We did some research and made this infographic to help you quickly compare rental yields of the major cities in Luxembourg versus those in neighboring countries. It provides a clear view of how this country positions itself as a real estate investment destination, which might interest you if you're planning to invest there.

Is there a difference in treatment if I sell my main residence versus a second home or investment property?

The treatment of main residence sales versus investment property sales in Luxembourg represents one of the most significant distinctions in the country's capital gains tax system.

Your main residence enjoys complete capital gains tax exemption regardless of holding period, purchase price, sale price, or profit amount. This means you can buy a home for €400,000, sell it for €800,000 after any period, and pay zero capital gains tax on the €400,000 profit.

Investment properties and second homes face full capital gains taxation under the standard rules: up to 45.78% for holdings under five years, and approximately 22.89% for longer holdings. The main residence exemption doesn't apply to any property that wasn't your primary dwelling.

To qualify as a main residence, the property must have been your principal place of residence, meaning where you actually lived most of the time. Having multiple properties doesn't disqualify the exemption, but only one property can be designated as your main residence at any given time.

This distinction makes owner-occupied property the most tax-efficient real estate investment in Luxembourg, as you enjoy both housing benefits and complete capital gains exemption upon sale.

How are capital gains reported—do I include them in my annual Luxembourg tax return or a separate filing?

Capital gains from Luxembourg property sales are reported directly in your annual Luxembourg income tax return, not through a separate filing process.

You must include all taxable capital gains in the same annual return where you report your salary, business income, and other revenue sources. The capital gains are added to your total taxable income for the year in which the sale occurred.

The reporting typically occurs in the year following the property sale, as Luxembourg's tax year runs from January to December and returns are filed the following spring. For example, a property sold in September 2025 would be reported in your 2025 tax return filed in 2026.

You'll need to provide documentation including the notarial deed of sale, original purchase documents, receipts for deductible improvements and costs, and calculations showing your taxable gain after applying exemptions and indexing.

Luxembourg's tax administration expects detailed supporting documentation for capital gains calculations, particularly for claims of exemptions, cost deductions, and inflation indexing adjustments.

When exactly is the tax due after realizing a capital gain in Luxembourg?

Capital gains tax in Luxembourg becomes due following the standard Luxembourg tax payment schedule after your annual tax assessment is completed.

After filing your annual tax return that includes the capital gain, Luxembourg's tax administration will assess your total tax liability and issue a tax assessment notice. This process typically takes several months after filing, usually between 6-12 months depending on the complexity of your return.

Payment is generally due within one month of receiving the tax assessment notice, though Luxembourg allows installment payment arrangements for larger amounts. The tax administration may also require advance payments if you have significant recurring capital gains.

Unlike some countries that require immediate withholding or advance payments on property sales, Luxembourg follows its standard assessment and payment cycle. This provides flexibility in timing but requires careful cash flow planning to ensure funds are available when the tax bill arrives.

Interest charges apply to late payments, making it crucial to respond promptly to tax assessment notices and maintain sufficient liquidity to meet your obligations.

Are there any special cases, like inheritance, donations, or cross-border transactions, where capital gains are treated differently?

Luxembourg provides several special provisions for capital gains treatment in specific circumstances, particularly around inheritance and cross-border situations.

Inherited property receives preferential treatment through the additional €75,000 deduction available for direct line inheritance (parents to children, grandparents to grandchildren). This deduction applies on top of the standard €50,000 exemption, potentially eliminating taxation on gains up to €125,000 for individual inheritors.

Cross-border transactions follow clear rules: Luxembourg taxes all capital gains from Luxembourg-located property regardless of the seller's residence, while Luxembourg residents may face taxation on foreign property gains depending on applicable tax treaties. Most tax treaties prevent double taxation through credit or exemption mechanisms.

Property donated during your lifetime typically doesn't trigger immediate capital gains taxation for the donor, but the recipient inherits the donor's original cost basis. This means capital gains tax is deferred until the recipient eventually sells the property.

Participation exemption rules apply to property held through corporate structures, where companies holding Luxembourg real estate for more than 12 months and meeting certain value thresholds may qualify for reduced taxation on disposal.

It's something we develop in our Luxembourg property pack.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.

Sources

1. EasyBiz Luxembourg - Capital Gains Tax Guide
2. PwC Tax Summaries - Luxembourg Individual Income Determination
3. Guichet.lu - Share Purchase and Sale Taxation
4. Mondaq - Private Wealth Luxembourg 2025
5. Eversheds Sutherland - 2025 Luxembourg Tax Changes
6. KPMG Luxembourg Country Profile
7. Dentons - Luxembourg Real Estate Tax Guide
8. PwC - Capital Gains Tax Rates Chart