Preparing for retirement with new Tax deductions in Luxembourg

With the tax reform of 2017, the Luxembourg state intends to strengthen the purchasing power of taxpayers, residents and cross-border workers. Among the measures adopted, the raising of the tax deductibility limits related to insurance is a strong focus. This is a good way to prepare for the future while reducing taxes.
Preparing for retirement with retirement provision

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As you know, the amount of your future state pension will be well below your current salary.

To take full advantage of your retirement, you can build up additional savings. This is also accompanied by an advantageous tax system.

Article 111 bis of the Income Tax Act amends the maximum annual deductible amount of your retirement provision premiums.

Previously, the ceiling was linked to the taxpayer's age: amounts ranging from €1,500 to €3,200 could be deducted from the tax base.

Since 1 January 2017, the ceiling was reassessed at €3,200 for all, without age requirement.

This measure affects both current policies and new subscriptions.

The minimum subscription period is 10 years, with no possibility of early liquidation except in the event of serious illness or disability.

The benefit is payable at the earliest at age 60, at the latest at age 75.

"With this new benefit, I pay less tax, while building up retirement capital" enthuses Caroline, 53, human resources manager at an audit firm. "It's reassuring to know that a supplementary pension is waiting for me to face the unexpected."

Prudent or reckless?

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There are as many solutions as there are investment profiles.

Thanks to the expertise of Luxembourg's insurance market players, you can build your savings according to your needs.

"I chose the amount of premiums which I can adjust at any time and the date I want the policy to end", explains Pedro, 46, a manager in a transport company.

"And because I'm not afraid of taking risks, I turned to a product that has strong potential for returns."

Another new feature: at the end of the policy, you can receive up to 100% of your capital.

This is the formula chosen by Brita who has just celebrated her retirement: "I had a plan to open a bed and breakfast in the building attached to my house, so I preferred to use my savings straight away to carry out the initial building work.”

Some will opt for a life annuity payable monthly, others for a monthly annuity and capital combination.

Other deductible insurance premiums

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Article 111 LIR offers Luxembourg taxpayers the ability to deduct life, death, disability or sickness insurance premiums, up to a ceiling of €672 per person making up the household. As with retirement provision, the policy must be taken out for a minimum of 10 years.

"With my spouse and my two children, we deduct €2,016 each year from our tax base, which is a significant saving", adds Caroline. "Not to mention that the insurance product we have chosen protects our family by providing capital in the event of death."

It should be noted that premiums for third-party liability insurance (auto and home) may also be deductible under Article 111 LIR. The deductible annual limit includes interest expense on consumer loans.

Your insurance company will provide you with a certificate to help you complete your annual tax return. To find out the amount you can deduct from your taxes according to your situation, do a simulation with the online tax calculator