Calculating rental yields under luxembourg law

Definition of rental yield

Gross yield is the total amount of rent paid by the tenant to the landlord.

The net yield is defined as the balance obtained after deduction of the various costs of obtaining the property: charges, interest and depreciation.

The legal maximum gross rental yield in Luxembourg

This ceiling applies to residential rentals. Commercial rents are unrestricted.

Under the terms of the law of September 21, 2006, article three:

The rental of a dwelling for residential use may not earn the lessor an annual income exceeding a rate of 5% of the capital invested in the dwelling.

E.g.: for a property in which the lessor has invested €1,000,000, the annual rent cannot legally exceed €50,000.

Definition of capital invested

In the event of a sale for valuable consideration, the purchase price indicated in the deed of transfer of ownership, and the costs of the deed, are presumed to correspond on the day the deed is signed to the capital invested, revalued and discounted.

As a result, in the event of the sale of the building the tenant occupies, the new owner may claim rent revalued in line with the price stated in the deed of purchase.

If it is not possible to determine the capital invested, this may, in the event of disagreement, be determined by an expert who will evaluate the capital invested.

In the event of a dispute, the rental commission can determine the capital invested, taking into account the value of the land, the volume of the rented property, its surface area and the finish of the accommodation.

Calculating net rental yield in Luxembourg

The following items are deducted from the gross rental yield:

• Building depreciation (excluding land value)
• Property tax
• Obtaining fees and charges
• Insurance
• Work

The resulting balance represents the amount
rental income before tax.

CALCULATION EXAMPLE (REAL ESTATE RENTAL INCOME)

❖ Apartment over 60 years old :

• Purchase price: €280,000.00
• Financed with 80% credit
• Deed costs :

• Registration fees
• Notary fees