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Renovation and tax in Luxembourg: which expenses are actually deductible?
Renovating in Luxembourg: which expenses are deductible, which aren't, and the tax perks many owners overlook. A clear, simple breakdown on taxx.lu.
Renovating is expensive. The good news: the taxman can ease the bill. The less good news: not always the way you'd expect.
It all comes down to one question. Who lives in the property? You, or a tenant?
You're renovating the home you live in
First truth, and it stings a little. The cost of the works on your main residence is not deductible from your income.
Materials, the tradesperson's labour, paint, a new kitchen: none of it reduces your taxable income, the figure your tax is calculated on. Even if you insulate the walls or replace the windows, your tax return doesn't budge.
But stop there, and you'll miss two real advantages.
1. VAT at 3% instead of 17%
VAT is the tax added to the price of almost everything you buy. In Luxembourg, the standard rate is 17%. To renovate a home used as a main residence, the State brings it down to 3%.
That's 14 points saved on every eligible works invoice. The total advantage is capped at €50,000 per home.
Example
Say you have €10,000 of electrical work, before tax.
At 17% VAT, you pay €11,700.
At 3% VAT, you pay €10,300.
Saving: €1,400. Straight off the bill.
Heads up
This advantage isn't automatic. The request goes through the Administration de l'enregistrement, des domaines et de la TVA (AEDT), and it must be made before the works begin. Check your home's eligibility before you sign a single quote.
2. The interest on the loan that funds the works
Borrowing to renovate? The interest on that loan is deductible.
Interest is what the bank charges you on top of the capital you repay.
Depending on the type of works, that interest is deducted under two different headings:
- As special expenses, for routine upkeep and ordinary renovation: re-rendering a façade, replacing a boiler, insulation, redoing the roof. These are works that keep the property as it is, or improve its comfort, without changing its nature or structure. The interest then joins your other special expenses, within the legal ceilings.
- Under the property-interest category, for works that substantially transform the property: an extension, adding a storey, building an annexe. These works change the nature or substance of the building, so they fall under the property regime.
This ceiling depends on your home's availability date: the moment it's ready to be lived in, even if you move in later.
taxx.lu tip
The exact ceiling deserves its own article, and we've written it: Mortgage interest in Luxembourg: how much can you deduct for your main residence?.
On taxx.lu, the deductible amount is worked out automatically from your availability date.
You're renovating a property you rent out
Here, the taxman is more generous. Works on a let property are deducted from your rental income. But not all of them in the same way.
There are two categories. And the difference changes everything.
Upkeep and repair: deductible straight away
Putting the property back in order? You deduct the expense in the year you pay it.
A few examples: repainting, repairing the roof or the façade, replacing a broken boiler, swapping out faulty parts.
Major improvement: deductible, but slowly
Transforming the property, enlarging it, giving it a markedly higher value? That's no longer upkeep. It's an investment.
Examples: converting the loft, installing a lift, turning an office into a dwelling.
These costs aren't deducted in one go. They're deducted through depreciation.
What is depreciation?
Depreciation means deducting the cost of an asset a little each year, over its useful life. A bit like spreading a car's wear and tear over time.
The 20% rule to find your way
How do you know whether your works count as upkeep or as investment? The ACD (the Administration des contributions directes, tax office) uses a simple benchmark.
If the total works don't exceed 20% of the property's purchase price, excluding the land, they're treated in principle as upkeep and repair. So deductible straight away. Above that, you generally tip over into investment, and therefore depreciation.
Note
A big upkeep bill in a single year? On request, you can spread that deduction evenly over 2 to 5 years. Handy for smoothing the effect on your tax.
Good news
Good news on the VAT side too. Renovating a let property can also qualify for the 3% rate, with the same prior request to the AEDT.
The recap at a glance
| Your situation | Cost of the works | Loan interest | VAT on the works |
|---|---|---|---|
| Main residence | Not deductible | Deductible (up to the ceiling) | 3% possible |
| Let property, upkeep | Deductible the same year | Deductible | 3% possible |
| Let property, improvement | Deductible via depreciation | Deductible | 3% possible |
In short
Main residence: the works don't reduce your income, but VAT at 3% and the loan interest do work in your favour.
Let property: everything is deductible, but upkeep straight away and improvement over the years.
In both cases, one golden rule. Keep every invoice and every supporting document. No proof, no deduction.
Tip
On taxx.lu, you enter your works and the platform applies the right rules, estimates your refund in real time, and tells you what to optimise for next year with Opti-Score. Note: AutoScan imports your invoices and certificates, but depreciation schedules still need to be entered by hand.
