Cut to 8% VAT on Affordable Housing to Stimulate Construction
Luxembourg has unveiled a wide-ranging housing package for 2026, with a reduced VAT rate taking centre stage as part of efforts to increase the supply of affordable homes.
The government will introduce an 8% reduced VAT rate for the construction of affordable rental housing compared to the standard rate of 17%.
The relief will apply to qualifying developments that meet conditions on property size, sale price, rental levels and tenant income.
This follows a recent doubling on VAT relief for housing costs.
The VAT cut forms part of a broader package designed to revive the housing market. Other measures include:
- Increasing the “Bëllegen Akt” tax credit for first-home buyers from EUR 40,000 to EUR 45,000 per person, raising the registration tax exemption threshold to EUR 640,000 (almost EUR 1.3 million for couples).
- A three-year exemption from registration duties on qualifying off-plan (VEFA) property purchases where construction is less than 80% complete.
- A 6% accelerated depreciation allowance over six years for qualifying residential construction costs of up to EUR 600,000.
- A EUR 250 million housing bond, launching in January 2027, to finance affordable housing projects.
The package demonstrates how governments are increasingly using VAT policy alongside broader tax incentives to address housing shortages and encourage private investment in residential development.
See more in our Luxembourg Country Guide.
