Owning a Luxembourg property from abroad

A large number of people who leave Luxembourg keep the apartment, and roughly half of them do it for a good reason and half because selling felt like a decision they did not want to make that year. Owning property here from another country is entirely workable and it is not passive. There is a tax position to manage, a co-ownership that votes on things whether or not you attend, a tenant who will call about a boiler on a Sunday, and a set of obligations that do not pause because you have moved.

Sell or keep: the calculation

Do the arithmetic properly before deciding, because the sentimental answer and the financial answer frequently differ.

• The real net yield, after co-ownership charges, management fees, insurance, maintenance, void periods and tax. The gross yield in the listing is not the number.
• The capital gains position. A principal residence is in principle exempt, but the exemption is preserved only where the sale takes place no later than 31 December of the year following the move, and where one of the qualifying conditions is met. Keeping the property for three years and then selling converts an exempt gain into a taxable one. That single fact decides the question for a substantial number of people.
• The mortgage. Whether the lender's terms permit letting, and whether the rate changes.
• Your own liquidity. A Luxembourg apartment is a large, illiquid, single-market holding, and keeping it means keeping that concentration.
• Whether you might return. The strongest genuine argument for keeping, given how difficult re-entry into this market is.

The tax position as a non-resident owner

• Luxembourg rental income is taxable in Luxembourg, and a non-resident owner is required to file a Luxembourg return in respect of it.
• Deductible expenses include loan interest, co-ownership charges borne by the owner, insurance, maintenance and depreciation on the building, within the applicable rules.
• Depreciation matters more than people expect and is one of the main reasons a Luxembourg letting can be tax-efficient. The rates and the treatment have changed in recent years, so establish the current position rather than relying on older advice.
• Your country of residence will also want to know. The double taxation treaty determines how the income is treated there, and in most cases Luxembourg-source rental income is taxed in Luxembourg with relief given at home, but the mechanism varies by treaty.
• Capital gains on a later sale are taxed under Luxembourg rules for non-residents as for residents, with no withholding at source, which places the filing obligation on you.

This is the clearest case in this whole journal for paid advice. Two jurisdictions, a treaty and a depreciation regime is not a do-it-yourself situation, and the cost of getting it right once is small against the exposure.

The management structure

Decide before you leave, not afterwards, because arranging it remotely from a different time zone is where absentee ownership goes wrong.

• Someone must hold keys and be able to attend at short notice.
• Someone must answer the tenant. A leak at nine on a Sunday is not an email.
• Someone must deal with the syndic, receive the correspondence and attend or vote by proxy at the general meeting.
• Someone must handle the annual charges reconciliation and check it.
• Someone must manage the tenancy itself: inventories, the guarantee, renewals, notices and the exit.

Full management by an agency costs a percentage of the rent and removes all of it. Managing it yourself through a friend costs the friendship the first time there is a leak. There is no third option that works over years.

The co-ownership, which does not wait for you

An absent owner remains a member of the co-ownership with the same obligations and the same exposure.

• The general meeting decides works, and it decides them whether or not you attend. A facade renovation voted in your absence is still your call for funds.
• Give a proxy to someone who will attend and who understands your position.
• Read the minutes and the accounts every year rather than filing them.
• Keep an address the syndic can reach. Correspondence sent to the apartment and read by your tenant is correspondence you do not receive.
• Watch the works fund. A building with a thin reserve and ageing fabric will produce a call, and you want to see it coming.

The practical checklist before you go

• Decide sell or keep, with the capital gains deadline in front of you.
• Appoint the manager and sign the mandate before you leave.
• Tell the lender that the property will be let, and check the terms.
• Change the insurance from owner-occupier to landlord cover.
• Keep a Luxembourg bank account open for the rent, the charges and the tax.
• Update the address with the syndic, the commune, the tax administration and the insurer.
• Keep the file: the deed, the loan documents, the works invoices, the co-ownership records. The works invoices in particular will matter on a future sale.
• Register for the tax filing obligation and diarise it.

The tenant, and why selection matters more from a distance

An owner living in Luxembourg can absorb a difficult tenancy. An owner in another country cannot, which makes the choice of tenant the most important decision in the whole arrangement.

• Verify employment and income properly, with the contract and recent payslips rather than an assurance.
• Take references from a previous landlord where possible.
• Constitute the guarantee correctly, within the two-month legal maximum, in a blocked account or as a bank guarantee.
• Prefer a longer commitment. Turnover costs voids, agency fees and inventories, and each one has to be managed remotely.
• Conduct a photographed entry inventory, without exception. From abroad, it is the only version of the property's condition you will be able to prove.
• Insist on the tenant's insurance certificate and check it is renewed.

A good tenant in a well-documented tenancy is close to passive income. A poorly selected one, managed from two time zones away, is the reason most absentee owners eventually sell.

Three questions we are asked

Is it worth keeping the apartment as an investment?

It depends on the net yield after everything, on the capital gains consequence of holding rather than selling now, and on whether you want a large single-asset exposure to one small market. For a household that may return to Luxembourg, keeping is often right. For one that will not, the honest answer is frequently to sell within the exemption window and diversify.

Can I manage it myself from abroad?

For a while, and rarely well. The tenancy administration is manageable remotely; the emergencies, the syndic and the annual reconciliation are not. Most owners who start self-managing appoint an agency within two years, having lost more than the fee in the meantime.

What happens if the tenant stops paying?

The procedure runs through the Luxembourg courts and it takes time. This is the argument for careful tenant selection at the outset, for a properly constituted guarantee, and for having someone here who can act promptly rather than discovering the problem three months in.

How we work on this

Managing property for owners who have left the country is a substantial part of what we do, and the recurring pattern is the same: the ones who set it up before leaving have no problems, and the ones who improvise it afterwards have several.

It is tempting to assume that the management structure is automatically positive, but a serious property guide should also test the opposite case. For the question raised by “The management structure”, the useful detail is not a generic list of advantages.

For the practical checklist before you go, note what you can see, what you can measure, what you need to ask and what would be expensive to change. For the question raised by “The management structure”, the useful detail is not a generic list of advantages.

A useful way to test the co-ownership, which does not wait for you is to run a normal-day scenario. For the question raised by “The co-ownership, which does not wait for you”, the useful detail is not a generic list of advantages.

For the tenant, and why selection matters more from a distance, note what you can see, what you can measure, what you need to ask and what would be expensive to change. For the question raised by “The co-ownership, which does not wait for you”, the useful detail is not a generic list of advantages.

A stronger reading of sell or keep: the calculation starts by asking what would change for the resident on an ordinary weekday.