Borrowing for a second residence: tax advantages

Borrowing for a second residence abroad comes with some tax advantages. This article discusses two benefits for a resident in Belgium borrowing for a second residence within the EU.

The ordinary interest deduction

The ordinary interest deduction allows you to deduct the interest paid from all your property income. The interest on the loan for the second residence then reduces the property income. And this while the income from the foreign property is exempt (with progression reservation) from Belgian taxes.

This measure is mainly of interest to people who own other real estate in Belgium besides their own family home. As a result, the interest cost of the foreign second residence reduces your total property income. With a reduction in the personal income tax payable as a result.

If you buy a residence abroad, and already have financing for rented Belgian property, the situation is different. The existing interest cost is then partly deducted from the already exempt income from the property abroad. This dilutes the tax advantage for your current loans on Belgian property. However, if your total interest cost is higher than your total property income, the benefit obviously remains optimal.

The ordinary interest deduction applies to any form of financing. So you do not necessarily have to take out a mortgage loan.

In addition, ordinary interest is also valid for loans taken out to renovate your (foreign) property.

Read more about Belgian property taxes in Spain and Portugal.

Federal basket long-term savings

Borrowing for a second residence is also considered a form of long-term savings. You have a federal tax benefit of 30% from the capital repayments (and any debt balance insurance premiums). However, there is - depending on your professional income - a maximum ceiling of €2350 per person (tax year 2020). Specifically, you therefore enjoy a maximum tax benefit of €705.

But within this €2350 basket, you can also house financial products. Think, for example, of life insurance. However, the maximum cap remains in place. So if you are already doing pension savings, the tax benefit of financing is rather limited.

Note: from 2024, the benefit of the federal basket of long-term real estate savings expires (unlike the ordinary interest deduction, which remains in place). So the timing of taking out the loan is important.

What are the options for borrowing for a second stay abroad?


Update: December 2022

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