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Inheritance tax in Luxembourg for residents and non-residents
Inheritance tax affects how much of your legacy is passed on to your heirs. For residents and those with assets in Luxembourg, understanding is essential to ensure proper financial planning and compliance with the law. This article will explain the particularities of inheritance tax in Luxembourg to help you navigate this complex subject.
Being aware of this issue is crucial even if you are not resident in Luxembourg, particularly if part of your real estate assets or the real estate assets of your relatives who may leave you an inheritance are located in Luxembourg. These assets may be subject to Luxembourg inheritance tax.
What is legal inheritance and how to become eligible
Inheritance, legally speaking, refers to the totality of assets, rights, and obligations that are transferred to heirs following an individual's death. Inheritance in Luxembourg can be established in two primary ways: following the intestate succession order established by Luxembourgish law or through a will.
This transfer process can include both material assets (such as properties, money, and valuable items) and liabilities (debts and outstanding obligations).
In the absence of a will, heirs are designated according to the intestate succession order set by Luxembourgish law, which includes six distinct orders.
1. Children and descendants
The children of the deceased (or their descendants if the children predeceased the decedent) inherit in equal shares. Regardless of their status (legitimate, illegitimate, adoptive, or natural), they exclude all other heirs except the surviving spouse.
2. The Surviving Spouse
The surviving spouse holds a privileged status. In the absence of children, the spouse inherits the entirety of the deceased's estate. If there are children, the spouse can choose either to inherit the full usufruct of the marital home and its furnishings if they were jointly owned or to receive a child's legitimate share.
3. Parents and Privileged Collaterals (Siblings)
In the absence of children and a surviving spouse, the deceased's parents and siblings inherit the estate. Each parent receives one-quarter, with the remaining half shared among siblings or their representatives. If there are no siblings, the parents inherit the whole estate.
4. Ordinary Ascendants (Grandparents, Great-Grandparents)
In the fourth order, the deceased's ascendants inherit half from the maternal side and half from the paternal side. If there's no one left on one side, the share will go to the other side, and the heir to the highest degree will get everything.
5. Ordinary Collaterals (Uncles, Aunts, Cousins)
This includes uncles, aunts, cousins, and other collaterals. The principle of division is applied again, and the closest collateral on each side inherits half. The inheritance ascends up to the fourth degree. If one branch has no eligible heirs, the entire inheritance goes to the other branch.
6. The Luxembourgish State
In the absence of any other heirs, the state of Luxembourg inherits the deceased's estate.
Designated heirs can accept the inheritance outright, accept it subject to inventory (which accounts for both assets and liabilities), contest it, or renounce it.
Last will and documents needed for inheritance
If there is no will, the succession will be resolved according to the legal orders of succession previously discussed. However, an individual can make a will to alter the legal order of succession and give preference to certain persons. It is important to consider a few key points regarding who can make a will and what assets can be disposed of in a will.
Who can make a will?
A person must be capable of validly and freely expressing their wishes. Therefore, they must be at least 16 years old and of sound mind. A will made by someone under guardianship would be invalid. Similarly, a will made by a person who, while not under guardianship, was suffering from mental incapacity or weakness of mind at the time of making the will, would also be invalid.
What can be disposed of by will?
When drafting a will, it is crucial to know what part of the estate can be disposed of. Certain individuals are protected by law and are entitled to a portion of the inheritance that cannot be deprived, known as the inheritance reserve. The part that can be freely disposed of is called the available quota.
Under Luxembourgish law, only the descendants of the deceased (children or, if the children predeceased, their children) are entitled to the reserved portion.
The reserved portion amounts to half of the legal inheritance if the deceased leaves one child, two-thirds if there are two children, and three-quarters if there are three or more children.
1/2
The reserved portion of the legal inheritance if the deceased leaves one child
2/3
The reserved portion of the legal inheritance if the deceased leaves two children
3/4
The reserved portion of the legal inheritance if the deceased leaves three or more children
6
The total number of orders of heirs according to Luxembourgish law
Taxes on inheritance in Luxembourg
Inheritance tax in Luxembourg is a levy imposed by the government on the transfer of assets from a deceased person to their beneficiaries. This tax is applied to the net value of the deceased's estate, which includes all properties, money, and possessions owned at the time of death.
The primary purpose of inheritance tax is to generate revenue for the government and contribute to the redistribution of wealth within society. By taxing the transfer of substantial estates, the government aims to reduce economic inequality and ensure that the wealth accumulated by one generation is not entirely transferred without contributing to public finances.
That said, there are two crucial considerations related to this point: who is subject to this tax and how the tax is calculated, so let's take a look at them.
Who is subject to inheritance tax in Luxembourg?
Understanding who is subject to inheritance tax in Luxembourg requires knowledge of the two types of taxes applied in the context of inheritances: succession duties and transfer duties upon death.
Succession duties
Succession duties are applicable to the inheritance of Luxembourg residents. If the deceased had their last domicile or the seat of their wealth in Luxembourg, their estate is subject to succession duties. This means that all assets, regardless of where they are located, are potentially liable for inheritance tax under Luxembourg law. Succession duties take into account the net value of the estate after deducting any debts and liabilities.
Transfer duties upon death
Transfer duties upon death, on the other hand, apply to the value of real estate located in Luxembourg that belonged to non-residents, one can think of this tax as the Luxembourg inheritance tax for non-residents. If the deceased did not have their last domicile or the seat of their wealth in Luxembourg, but owned real estate within the country, this property is subject to transfer duties. These duties are specifically targeted at immovable property within Luxembourg, ensuring that even non-residents contribute to the tax system if they own significant assets within the country.
How is the inheritance tax calculated?
Calculating inheritance tax in Luxembourg involves a three-step process: determining the estate value, identifying exemptions, and applying the applicable tax rates to the inherited assets. Let’s break down each of these steps in detail.
Valuation of the estate
Since there are two different taxes, succession duties and transfer duties upon death, there are also two ways to calculate the taxable estate in Luxembourg. However, in both cases, the estate includes both the deceased's assets and liabilities at the time of death, with liabilities deducted from the assets. The difference lies in which assets and liabilities are considered for each tax.
For succession duties (Residents):
- Assets: All real estate and movable assets (furniture, cars, shares, money, artworks, etc.) located both in Luxembourg and abroad.
- Liabilities: All existing debts at the time of death, including related interest, such as private debts, professional debts, unpaid taxes, and funeral expenses.
For transfer duties (Non-Residents):
- Assets: The market value of real estate located in Luxembourg at the time of death.
- Liabilities: All debts related to the real estate, including those secured by these properties and debts incurred for their acquisition, improvement, or maintenance.
Counting exemptions and determining the taxable base
Once the net value of the inheritance is established, the next step is to determine which part of the inheritance is subject to tax. Luxembourg offers specific exemptions that allow certain amounts of the inheritance to be transferred tax-free.
The following inheritances are exempt:
- The legal share of the inheritance corresponding to heirs in the direct line (ascending or descending).
- Inheritances between spouses or between partners in a registered partnership for at least three years before the succession.
- Successions with a value, minus debts, not exceeding 1,250 euros.
- Real estate located abroad that is part of the inheritance of a Luxembourg resident.
- Under certain conditions, movable property located abroad.
Determination of applicable rate
The final step is to determine the applicable tax rate. Inheritance tax rates in Luxembourg vary based on the relationship between the deceased and the beneficiary.
The inheritance taxation rates are applied to the net portion received by each heir, which may include a legal portion and an extra-legal portion, each subject to different rates.
Legal portion
Refers to the part received by the heir based on their status (children, spouse, siblings, etc.).
Extra-legal portion
Refers to the part received by the heir through a will, donation, etc.
The inheritance tax rates in Luxembourg in 2024
| Base rate for the legal portion | Base rate for the extra-legal portion | |
| Direct line (ascending or descending) | 0% | 2.5% to 5% |
| Between spouses and civil partners bound for at least 3 years by a declaration of civil partnership before the opening of the estate | 0% | 0% |
| Between siblings | 6% | 15% |
| Between uncles or aunts and nephews or nieces | 9% | 15% |
| Between adopter and adoptee (in simple adoptions) | 9% | 15% |
| Between great-uncles or great-aunts and great-nephews or great-nieces | 10% | 15% |
| Between the adopter and descendants of the adoptee (in simple adoptions) | 10% | 15% |
| Between all other persons | 15% | 15% |
The basic inheritance tax rates increase if the net taxable value of the portion inherited by the successor exceeds 10,000 euros according to the following table.
| Taxable amount (euros) | Percentage increase from base rate |
| 10,000 – 20,000 | 10% |
| 20,001 – 30,000 | 20% |
| 30,001 – 40,000 | 30% |
| 40,001 – 50,000 | 40% |
| 50,001 – 75,000 | 50% |
| 75,001 – 100,000 | 60% |
| 100,001 – 150,000 | 70% |
| 150,001 – 200,000 | 80% |
| 200,001 – 250,000 | 90% |
| 250,001 – 380,000 | 120% |
| 380,001 – 500,000 | 130% |
| 500,001 – 620,000 | 140% |
| 620,001 – 750,000 | 150% |
| 750,001 – 870,000 | 160% |
| 870,001 – 1,000,000 | 170% |
| 1,000,001 – 1,250,000 | 180% |
| 1,250,001 – 1,500,000 | 190% |
| 1,500,001 – 1,750,000 | 200% |
| 1,750,000+ | 220% |
Navigating the intricacies of inheritance tax in Luxembourg requires a solid understanding of the legal framework and tax regulations. For personalized guidance and to ensure compliance with all legal requirements, consulting with a qualified inheritance law professional is strongly recommended. Proper estate planning and expert advice can help mitigate potential issues and ensure that your inheritance matters are handled efficiently and in accordance with Luxembourgish law.
Frequently Asked Questions (FAQ)
How can one minimize inheritance tax liability through estate planning?
Minimizing inheritance tax liability in Luxembourg involves strategic estate planning. Key strategies include making use of exemptions and allowances, such as transferring assets to direct heirs or spouses, who benefit from lower tax rates or exemptions. Establishing a well-drafted will can ensure that assets are distributed according to your wishes while maximizing tax benefits. Additionally, gifting assets during your lifetime can reduce the overall value of the estate subject to inheritance tax. Consulting with a qualified inheritance law professional is essential for personalized advice and to navigate the complex legal landscape effectively.
What happens if an heir decides to renounce their inheritance?
If an heir decides to renounce their inheritance in Luxembourg, they must formally declare their renunciation before a notary. By doing so, they waive their rights to any part of the estate, including both assets and liabilities. The renounced portion of the inheritance is then redistributed according to the legal succession order, which may result in other heirs receiving a larger share. It is important for heirs to consider the implications of renunciation, as it is a definitive decision and cannot be reversed.
What is the difference between succession duties and transfer duties upon death?
Succession duties apply to the inheritance of deceased Luxembourg residents and encompass all assets and liabilities worldwide. In contrast, transfer duties upon death apply to the value of real estate located in Luxembourg for deceased individuals whose last domicile or main assets were outside Luxembourg. Essentially, succession duties cover a broader scope of the estate, while transfer duties are specific to real estate within Luxembourg for non-residents.
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Source: guichet.public.lu, www.csl.lu, www.justarrived.lu, www.fiduciaire-lpg.lu, pfi.public.lu, www.euodia.fr, www.expatica.com, e-justice.europa.eu
We took photos from these sources: Laura Fuhrman on Unsplash
Authors: Luz
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