Key Takeaway
The absence of inheritance tax does not necessarily mean that there will be no tax when an inherited property is sold.
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Key TakeawayThe absence of inheritance tax does not necessarily mean that there will be no tax when an inherited property is sold.
Selling an Inherited Property: Will You Be Taxed?
You have just inherited your parents' house. Since this is a direct-line inheritance, no inheritance tax was paid on the property.
Everyone in the family already has a home, and the decision is therefore to sell the property.
Will you be taxed when the property is sold?
If the property is not your main residence, the answer is generally yes. You may be taxed on the capital gain realised upon sale.
At this stage, it is important to know the date of the last acquisition for consideration. In other words, when did the parents purchase the house?
If the acquisition took place more than five years ago, the transaction will generally fall under the long-term capital gains regime applicable to property sales.
In the opposite case, the speculative gain regime may apply. This regime is generally less favourable because the gain is taxed as ordinary income according to the taxpayer's personal tax situation.
Difference Between Long-Term Capital Gain and Speculative Gain
- Long-term capital gain: this generally applies to properties held for more than five years. It is usually taxed at the half overall rate, with a maximum of 21% excluding the contribution to the Employment Fund.
- Speculative gain: this generally applies to properties resold within a shorter period after acquisition. It is taxed as ordinary income and may reach a maximum rate of 42% excluding the contribution to the Employment Fund.
- Important: temporary measures have existed for certain periods. The rules applicable on the date of sale should always be checked.
The effective tax rate always depends on the taxpayer's personal tax situation and on the legislation applicable at the time of the sale.
Concrete Example of a Capital Gains Calculation After Inheritance
In our example, the parents bought the house in 1982 for a total amount of 60,000 €, including costs.
Over the years, several investments were made in the property:
- Replacement of the window frames in 1990: 10,000 €.
- Replacement of the heating system in 1998: 15,000 €.
- Construction of a veranda in 2020: 30,000 €.
- All invoices have been kept.
These documents are valuable because they can justify certain investments made in the property and may reduce the taxable basis used to calculate the capital gain.
The property is eventually sold for 650,000 €.
The estate agency fees amount to 20,000 €.
How Is the Capital Gain Calculated?
From the sale price of the property, several items may be deducted:
- Estate agency fees.
- Works justified by invoices.
- The acquisition price of the property, including costs.
The various amounts are then revalued using the applicable coefficients for the relevant years.
| Item | Calculation | Amount Taken Into Account |
|---|---|---|
| Sale price | - | 650,000 € |
| Estate agency fees | - | 20,000 € |
| Purchase in 1982 | 60,000 × 2.50 | 150,000 € |
| Window frames in 1990 | 10,000 × 1.94 | 19,400 € |
| Heating system in 1998 | 15,000 × 1.63 | 24,450 € |
| Veranda in 2020 | 30,000 × 1.09 | 32,700 € |
| Calculated capital gain | 403,450 € |
In this example, the calculation is therefore:
650,000 € − 20,000 € − 150,000 € − 19,400 € − 24,450 € − 32,700 € = 403,450 €
Applicable Tax Allowances
In certain situations, several tax allowances may reduce the taxable capital gain.
- 75,000 € for certain direct-line inheritances meeting the legal conditions.
- 50,000 € per taxpayer every ten years, or 100,000 € for a couple taxed jointly.
In our example, the taxpayer is married and benefits from joint taxation.
The total amount of the allowances is therefore:
75,000 € + 50,000 € + 50,000 € = 175,000 €
The taxable capital gain then becomes:
403,450 € − 175,000 € = 228,450 €
What Amount of Tax Could This Represent?
The amount of 228,450 € is not the tax payable. It is the taxable capital gain after deduction of the relevant allowances.
When the property has been held for more than five years, the transaction generally falls under the long-term capital gains regime. For illustration purposes, this regime usually benefits from the half overall rate, with a maximum of 21% excluding the contribution to the Employment Fund.
In our example, if an indicative rate of 21% is applied, the tax could be estimated as follows:
228,450 € × 21% = 47,974.50 €
The contribution to the Employment Fund may still be added to this amount. The actual tax due will always depend on the taxpayer's personal tax situation and on the rules applicable at the time of the sale.
Simplified Comparison of the Two Regimes
| Situation | Tax Principle | Indicative Amount |
|---|---|---|
| Long-term capital gain | Half overall rate, with a maximum of 21% excluding the contribution to the Employment Fund. | 228,450 € × 21% = 47,974.50 €. |
| Speculative gain | Taxed as ordinary income, with a maximum rate of 42% excluding the contribution to the Employment Fund. | 228,450 € × 42% = 95,949 €. |
These amounts are provided for illustration purposes only. They do not include the contribution to the Employment Fund and do not take into account the taxpayer's personal tax situation.
BLImmo's Local Expertise
At BLImmo, we regularly assist heirs facing this type of situation in Steinfort, Hobscheid, Koerich, Mamer, Kehlen, Capellen, Garnich, Eischen and throughout Western Luxembourg.
A good understanding of the financial and tax implications often helps anticipate the real outcome of a property sale more accurately.
Key Points to Remember
- A direct-line inheritance does not automatically mean tax exemption upon resale.
- The acquisition date of the property by the parents is essential to determine the applicable tax regime.
- Invoices for works can play an important role in the capital gains calculation.
- Tax allowances may significantly reduce the taxable basis.
- A realistic property valuation helps anticipate the financial outcome of the sale more clearly.
FAQ: Selling an Inherited Property in Luxembourg
Do You Have to Pay Tax When Selling an Inherited House in Luxembourg?
In many cases, capital gains tax may apply when the property sold is not your main residence.
Which Works Can Be Included in the Capital Gains Calculation?
Works supported by invoices and meeting the conditions provided by tax legislation may be included in the calculation.
Why Is It Important to Keep Old Invoices?
Invoices can justify certain investments made in the property and may help reduce the taxable capital gain.
What Is the Difference Between a Long-Term Capital Gain and a Speculative Gain?
The difference mainly depends on the period between acquisition and resale. A long-term capital gain is generally taxed more favourably than a speculative gain.
What Happens When Several Heirs Sell the Property Together?
Each heir's situation should be analysed individually. The tax consequences may vary depending on each person's personal situation.
Should an Inherited Property Be Valued Before It Is Sold?
Yes. A realistic valuation helps anticipate the sale price, potential costs, possible capital gain and final financial outcome of the transaction.
Important Information
Revaluation coefficients, tax allowances, tax rates and application conditions may be changed by the legislator. The rules applicable at the time of the sale should therefore always be checked.
The information presented in this article is provided for general information purposes only and does not constitute tax advice or personalised legal advice.
BLImmo is not a tax adviser, accountant or fiscal consultant. BLImmo cannot be held liable for any errors, omissions or decisions taken solely on the basis of the information contained in this article. For a detailed tax analysis, we recommend consulting a qualified professional.
Useful Sources
Have You Inherited a Property?
Before making any decision, it is essential to know the property's real market value and to anticipate the financial implications of the sale.
BLImmo can assist you with the valuation of your house, apartment or land in Western Luxembourg.