Posted on 08 March 2022

How to declare the sale of an inherited property?

Inheritance is a subject of great debate in Luxembourg. Indeed, the inheritance in direct line benefits from many advantages, such as the exemption of certain expenses.

When selling a property that you have inherited, you can take advantage of an allowance, enabling you to considerably reduce the taxable capital gain.
In which cases can I benefit from such an allowance? What conditions must be met?
As for the sale of any real estate (except main residency), it is necessary to determine if it is a speculation profit or a capital gain. Explanations:

1.     Speculation profit

Speculative profit is defined as an investment made only for the purpose of reselling in the short term and making a profit on the sale. By "short term", the tax authorities will consider that if the purchase and sale of a property is made within a period of less than 2 years, then it is a speculative investment.
In the case of an inherited property, the 2-year interval is calculated by taking into account the date of the last deed of sale for a valuable consideration.
Example: Steve inherited a property, which belonged to his father. His father had acquired it himself in 2019. In 2021, the holding period of the property is therefore less than 2 years.
If Steve's father had acquired the property in 1990, the holding period would be longer than 2 years and the profit from the sale would be considered as a profit on disposal and not as a speculation profit.
The speculation profit will then be calculated as follows:
Sale price - Revalued acquisition price = Speculation profit
Speculation profit will be taxed at the progressive scale, i.e. at the "normal" rate.

2.     Profit on disposal

The profit from the sale of a property is considered as a profit on disposal when the time between the purchase and the sale is more than 2 years.
In this case, the profit on disposal is determined as follows:
Sale price - Revaluated acquisition price = Profit on disposal
In the case of an inheritance, an allowance of €75 000 is granted when the property acquired by inheritance in direct line was the parent's main residency.
Note that the €50 000 allowance can be added if the taxpayer has not benefited from it in the last ten years.
Once the allowance(s) have been deducted, the profit on disposal will be taxed at the global half rate (average half rate), i.e. at a maximum of 21%.
David inherited a house. This house was his mother's main residency. She had acquired this house in 2015 for €150 000. It has been revalued at €500 000. David is now selling the house for €700 000. David's income is taxed at the global rate of 20%. He has not benefited from the €50 000 allowance for the last ten years.
Holding period
2021-2015 = 6 years, the 2-year period is therefore respected
Determination of the capital gain
700 000 - 500 000 = €200 000
200 000 – 75 000 – 50 000 = €75 000 
Overall half rate 
75 000 * 10% = €7 500 of taxes to pay

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