In principle, heirs in Luxembourg must pay inheritance tax to the state. The amount of tax payable varies depending upon the relationship with the deceased and the value of the estate inherited. What does the estate include? How much tax is payable? Who is exempt such taxes? myLIFE answers your questions.

In Luxembourg, there are two types of tax payable on an inheritance: inheritance tax and transfer tax upon death. These are applied on the basis of the domicile of the deceased and the location of the assets included in their estate.

Inheritance tax relates to the assets of a deceased Luxembourg resident (who had their domicile or assets located in Luxembourg). In principle, inheritance tax is due on the value of chattels and immovable property (solely those located in Luxembourg).

Transfer tax upon death relates to the value of immovable assets located in the Grand Duchy that belonged to a deceased person who was not resident in Luxembourg.

In this article, we will primarily consider inheritance tax due upon the death of a Luxembourg resident.

What is the basis for inheritance tax

Inheritance tax is applied to the assets handed down by the deceased. We refer to this as the estate. In the absence of exceptions, it includes assets in existence at the time of death (money, car, chattels, property located in Luxembourg, etc.), less any liabilities and funeral costs.

If the deceased was married, their matrimonial regime must also be taken into account to determine which assets should be included in the estate. This is the liquidation of matrimonial property.

• • Under the statutory property regime: the estate = the assets owned by the deceased + half of the jointly owned assets of the spouses.
  • Under the universal community of property regime: the estate = half of the jointly owned assets.
  • Under the separation of property regime: the estate = the assets owned by the deceased.

Lastly, where applicable, certain elements should be added in, such as gifts made in the year prior to death (see the article: Gifts: a clear set of rules applies). The estate is then distributed between the heirs and legatees.

Who can inherit?

In Luxembourg, if there is no will, the legal heirs are determined by the law. The estate is shared between the family members based on the rules of inheritance law : children and descendants in the first instance, then the surviving spouse, ascendants (father, mother) and preferred collateral relatives (brothers, sisters), etc. The category of closest heirs excludes the most remote.

If there is a will, the assets are allocated in accordance with the desires of the deceased. However, the deceased must respect the reserved portion, which is the minimum share of the estate that children must receive upon the death of their parent: 50% if there is one child, 67% if there are two children, and 75% if there are three or more children.

The remaining share of the estate (called the discretionary portion) can be freely allocated. If there are no statutorily entitled heirs, the assets can be freely transferred.

Useful info: The heirs are not obliged to approve the inheritance as it stands. They may also contest it, waive their right to it, or accept it subject to an inventory (if they are not yet aware of the financial situation of the deceased and, for example, the presence of any debts).

What part of the estate is exempt tax?

No inheritance tax is payable in Luxembourg on:

• • Assets in the estate that are inherited by direct ancestors/descendants (between parents, grandparents and children) as their legal share (“ab intestat”). The legal share is the amount to which heirs are statutorily entitled. On the other hand, any amount that is received on the basis of a will, gift, etc. is subject to tax;
  • Assets transferred between spouses or partners (bound by a partnership for at least three years prior to inheritance proceedings);
  • An estate worth €1,250 or less;
  • Any immovable assets of a Luxembourg resident located abroad and, in certain cases, on chattels located abroad.

Inheritance tax rates in Luxembourg depend on the degree of kinship between the deceased and the heir, but also on the value of the assets included in the estate.

How high are inheritance tax rates?

Inheritance tax rates in Luxembourg depend on the degree of kinship between the deceased and the heir, but also on the value of the assets included in the estate. They range between 0% and 48%.

Basic rates of inheritance tax and transfer tax upon death in Luxembourg

* The tax exemption applicable to children is extended to full adoptions and simple adoptions providing that the adoptee is the child of the spouse, or is under 16 years old on the date of adoption.

Useful info: Bequests to municipalities, public institutions, hospices, welfare organisations, non-profit organisations, foundations and legal entities incorporated under the framework of one of the religions recognised under the terms of an agreement with Luxembourg are charged at 4% (without uplift).

Uplift to the rates of inheritance tax and transfer tax upon death

If the net taxable amount received by the heir of an estate is over EUR 10,000, an uplift is applied to the basic inheritance tax rate.

Remember: This uplift does not apply to the legal share of direct heirs.

The uplift scale is as follows:

Examples of how to calculate inheritance tax

Marie, the deceased, was single. She had no children and her parents are deceased.

Scenario 1: Marie has two brothers: Etienne and Romuald. She bequeaths them equal shares in her assets: EUR 120,000 each. In this case, each brother will pay tax on his share.

Basic rate for siblings: 6%
Uplift: 7/10 (for a share of EUR120,000)
Actual rate = 6 + (6 x 0.7) = 10.2%
Each share of the inheritance will therefore be taxed at 10.2%
Etienne and his brother will therefore each have to pay: EUR 120,000 x 10.2% = EUR 12,240

Scenario 2: Marie has chosen to bequeath more to one of her two brothers. She leaves EUR 180,000 to Etienne and EUR 60,000 to Romuald.

Calculation of the inheritance tax payable by Etienne
Basic rate for siblings on the legal share (i.e. on half of the estate, namely EUR 120,000): 6%
Basic rate on the discretionary share (i.e. the excess over the legal share: EUR 180,000 – EUR 120,000 = EUR 60,000: 15%
Uplift: 8/10 (for EUR 180,000)
Actual rate on the legal share = 6 + (6 x 0.8) = 10.8%
Actual rate on the discretionary share = 15 + (15 x 0.8) = 27%
The legal share of the inheritance will be taxed at 10.8% and the discretionary share at 27%
Etienne will therefore have to pay: [EUR 120,000 x 10.8% = EUR 12,960] + [EUR 60,000 x 27% = EUR 16,200] = EUR 29,160.

Calculation of the inheritance tax payable by Romuald
Basic rate for siblings: 6%
Uplift: 5/10 (for EUR 60,000)
Actual rate = 6 + (6 x 0.5) = 9%
Romuald’s share of the estate will therefore be taxed at 9%
Romuald will therefore have to pay: EUR 60,000 x 9% = EUR 5,400

Scenario 3: Marie has only one brother, Etienne. She bequeaths him all of her assets with a value of EUR 240,000.

Basic rate for siblings: 6%
Uplift: 9/10 (for EUR 240,000)
Actual rate = basic rate of 6% + uplift (6% x 9/10)
i.e., the actual rate = 6 + (6 x 0.9) = 11.4%
The inheritance will therefore be taxed at 11.4%
Etienne will therefore have to pay: EUR 240,000 x 11.4% = EUR 27,360

The heirs and universal legatees of a deceased Luxembourg resident are required to file a declaration of inheritance, even if they are exempt from tax.

How to go about paying inheritance tax

The heirs and universal legatees of a deceased Luxembourg resident are required to file a declaration of inheritance in writing to the the inheritance tax office of the deceased’s last place of residence, even if they are exempt from tax. Heirs and legatees of property located in Luxembourg and belonging to a deceased person who was not resident in Luxembourg at the time of death must send the declaration to the inheritance or transfer tax office of the place where the property is situated.

The declaration serves as the basis for determining inheritance tax and, where applicable, any transfer tax payable. It can be prepared by a notary and must be filed within six months if death occurs in the Grand Duchy (eight months if in Europe, 12 months if in the Americas, and 24 months if in Africa and Asia). For more information on the declaration of inheritance or transfer, visit the website of the AED.

Remember: There will be costs associated with this declaration: stamp duty, a will search and, where applicable, notary fees.

In conclusion, it is important to remember that the transfer of an estate can be planned in advance in order to optimise the tax payable by the heirs at the time of death. An asset manager, lawyer or notary are very useful allies in helping you plan your inheritance in order to safeguard the interests of your loved ones.