Luxembourg’s government has passed a law extending temporary housing aid measures until June 2025, providing support for the real estate market as it shows signs of gradual recovery, but signalled this would be the last extension of state aid for the property market.

The law extends several provisions, including an increased tax credit of €40,000 for purchasing a primary residence under the “Bëllegen Akt” program. This measure, designed to make homeownership more accessible, will remain in place until mid-2025 and will be retroactively applied for 2025 homebuyers. A €20,000-tax credit intended to incentivise investments in rental housing will also continue until the end of June.

In addition, the government has extended the favorable tax treatment of capital gains, reducing the tax rate to just 25% of the normal rate for properties sold within a two-year period. Furthermore, the accelerated depreciation rate for newly built properties, set at 6% over six years, will continue, benefiting both developers and investors.

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Another significant reform is the continued exemption from capital gains tax for properties used for social housing or those with high energy performance ratings (Class A+).

Originally introduced in the spring of 2024 for a period of one year, these fiscal reforms are aimed at stimulating property transactions, which had slowed in the wake of high interest rates and a slowing property market. While these measures have helped to stimulate the market, there are concerns that they could contribute to rising property prices.

Data from late 2024 already shows an uptick in real estate prices, with residential properties seeing an increase. The government has acknowledged this potential issue but said that the focus after June 2025 will shift towards increasing housing supply rather than prolonging tax incentives.

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The Bëllegen Akt alone is expected to cost taxpayers €27 million in 2025, while the accelerated depreciation provision will account for an additional €4 million in government spending.

Despite the fiscal impact, the government sees these extensions as essential to maintain momentum in the housing market, but also indicated that this will be the final extension of the current aid package.