Applying for a Standard Visitor visa from a Schengen country other than the Schengen country of residence

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Apparently the Visa Application Centre in Belgium only processes visa applications for residents of Belgium. This is probably why the system assumed you were one after you chose to apply through Belgium.

https://www.gov.uk/find-a-visa-application-centre states that residents of Luxembourg should apply through France.

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Just to extend @Henning answer and for future reference to this question.

For my case as quoted in the question, I have placed the application from Brussels, Belgium and in the field

What permission do you have to be in Belgium?

I have chosen "I do not have a visa and I am not a permanent resident" and stated that

As I am a holder of valid resident and work permit of Luxembourg which is valid till xx.xx.xx, I do not need visa to enter into Belgium as its a part of Schengen zone

It worked for my particular case.

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