Inheritance and Estate Tax in Luxembourg

1. Types of tax

Under the Luxembourg law, inheritances and gifts are subject to indirect taxes. The Administration de l’Enregistrement et des Domaines levies these taxes and is authorized to collect, inter alia, inheritance taxes and registration duties, such as, gift taxes and property transfer taxes. This administration is not responsible for collecting income taxes, which are not covered in this update.

Inheritance taxes apply to the value of an individual’s estate when he or she dies. Gift tax is due on the transfer of assets made during the individual’s lifetime.

1.1     Inheritance tax

Inheritance taxes are levied on the whole estate left by an inhabitant of the Grand-Duchy of Luxembourg at the time of his or her death, except real estate located abroad and movable goods located abroad that are taxed by reference to the citizenship of the deceased. Inheritance taxes are due in Luxembourg wherever the heirs are resident.

1.2     Death duty

Death duties are levied on real estate located in Luxembourg, which is left by a person who is not an inhabitant of Luxembourg. No tax is due on movable property located in Luxembourg and owned by a person who is not an inhabitant of Luxembourg.

1.3     Gift tax

Tax is levied on gifts made during the individual’s lifetime (inter vivos gifts).

A notarial deed is in principle required to evidence gifts under Luxembourg law. Gifts made in writing must be registered with the Administration de l’Enregistrement et des Domaines and are subject to registration duties (i.e., gifts taxes). Gifts that are not required to be made in writing (e.g., gifts of movable assets transferred by hand delivery (Dons manuels)) are generally accepted without notarial deed and thus without registration. However, such gifts may be subject to registration duties if another registered deed refers to them.

Gift taxes may be fixed or based on a percentage. The fixed duty is €12. The percentage duty depends on the degree of relationship between the donor and the donee. For gift tax purposes, the fiscal domicile of the donee and the donor are irrelevant. Moreover, gifts of immovable property may be subject to an additional transfer duty of 1% (Droit de transcription) to cover the property transfer in the public register.

Inter vivos gifts to direct line heirs, which qualify as ancestors’ partition (Partage d’ascendants), are exempt from transfer duty. Ancestors’ partition is a method through which a person can distribute his or her estate or part of it during his or her lifetime to his or her direct heirs.

2. Who is liable?

2.1     Inheritance tax and death duty

A person is deemed to be a Luxembourg inhabitant, and thus liable to inheritance tax, if he or she has his or her domicile or the center of his or her activities there. His or her tax domicile is the place where he or she has established his or her effective and permanent residence while the center of his or her activities is the place from which he or she manages or supervises his or her assets. Otherwise, this person is only liable to death duties.

2.2     Gift taxes

Immovable property

Real estate located in Luxembourg is subject to gift tax at a percentage rate even if the transfer deed is executed abroad. If the real estate is located abroad, only a fixed duty of €12 is due, even if the deed is registered in Luxembourg.

Additional gift duties may be applicable by virtue of a municipal surtax of a further 50% of the tax if the real estate (except housing property or building land) is located within the municipality of Luxembourg City.

Movable property

Gifts of movable property, which are made in Luxembourg by notarial deed, are subject to percentage gift taxes wherever the movable property is located.

Gifts of movable property, which are made abroad, are not subject to percentage gift taxes if the gift is made by notarial deed and the transaction takes place entirely abroad. However, a fixed duty of €12 is due if the act is voluntarily registered in Luxembourg.

3. Rates

3.1     Inheritance tax rates

Each beneficiary is separately taxed based on the net share attributed to him or her less personal allowances available.

The tax rates differ depending on the degree of relationship between the heir and the deceased or the donee and the donor.

Inheritance tax and death duty tax rates
Degree of relationship Tax rate for the
statutory share
Tax rate exceeding
the statutory share
Direct heirs 0% 2.5% or 5%*
Between spouses or registered partners since more than three years having common children or descendants 0% 0%
Between spouses or registered partners since more than three years having no common children or descendants 5%** 5%
Between siblings 6% 15%
Between uncles or aunts and nephews or nieces 9% 15%
Between the adopting parents and the adopted children in the case of a simple adoption (with no tax favorable treatment) 9% 15%
Between great-uncles or great-aunts and great-nephews or great-nieces 10% 15%
Between the adopting parents and the descendants of the adopted children in case of a simple adoption (with no tax favorable treatment) 10% 15%
Between unrelated parties 15% 15%

*In the case where a direct heir receives a legacy exceeding his or her intestacy share (e.g., under a will), a tax of 2.5% is computed on the part that represents the disposable portion of the estate. If the legacy exceeds the disposable portion, the excess will be taxed at 5%.

**This rate applies to the entire value of the transferred assets, decreased by an allowance of €38,000.

The rates mentioned above are increased by adding the following rates to the extent that the share received by each heir exceeds a net taxable amount of €10,000.

Scale from euros Scale up to euros Tax Rate Increase
€ 10,000 € 20,000 1/10
€ 20,000 € 30,000 2/10
€ 30,000 € 40,000 3/10
€ 40,000 € 50,000 4/10
€ 50,000 € 75,000 5/10
€ 75,000 € 100,000 6/10
€ 100,000 € 150,000 7/10
€ 150,000 € 200,000 8/10
€ 200,000 € 250,000 9/10
€ 250,000 € 380,000 12/10
€ 380,000 € 500,000 13/10
€ 500,000 € 620,000 14/10
€ 620,000 € 750,000 15/10
€ 750,000 € 870,000 16/10
€ 870,000 €1 million 17/10
€1 million €1.25 million 18/10
€1.25 million €1.5 million 19/10
€1.50 million €1.75 million 20/10
€1.75 million 22/10

With reference to the table above, the inheritance tax rate can reach a maximum of 48% (i.e., 15% + (22/10 x 15%) = 48%).

3.2     Inter vivos gifts tax rates

In favor of direct heirs, without reintegration exemption (sans dispense de rapport) 1.80%
In favor of direct heirs, with reintegration exemption (avec dispense de rapport en nature ou par préciput et hors part) 2.40%
Attribution of shares without exceeding the statutory shares 1.80%
Attribution of shares exceeding the statutory shares but within the disposable portion 2.40%
Attribution of shares exceeding the statutory share and the disposable portion 3.00%
Between spouses or partners registered since at least three years without any marriage contract 4.80%
Between spouses with a marriage contract or a gift in contemplation of marriage 2.40%
Between siblings 6.00%
Between siblings through a marriage contract or a gift in contemplation of marriage 3.00%
In favor of municipalities, hospices and non-registered charities 4.80%
In favor of nonprofit making organizations 4.80%
Between uncles or aunts and nephews or nieces 8.40%
Between the adopting parents and the adopted children 8.40%
Between father-in-law or the mother-in-law and the son-in-law or the daughter-in-law 8.40%
Between the individuals listed above if the donations are made through a marriage contract or are given in contemplation of marriage 4.20%
Between great-uncles or great-aunts and great-nephews or great-nieces 9.60%
Between the adopting parents and the adopted children’s descendants 9.60%
Between the individuals listed above if the donations are made through a marriage contract or are gifts in contemplation of marriage 4.80%
Between all relatives having a lower kinship than those mentioned above 14.40%
Between father-in-law or the mother-in-law and the son-in-law or the daughter-in-law in the case where the deceased spouse has not left any common children or descendants of them 14.40%
Between the same individuals listed above if the donations are made through a marriage contract or are gifts in contemplation of marriage 7. 20%

 

4. Exemptions and reliefs

4.1     Inheritance tax and death duty exemptions

Inheritance tax and death duty exemptions apply in the following cases:

  • Any direct heirs’ inheritance (except for the share exceeding the statutory share).
  • Any inheritance between spouses or registered partners since more than three years having at least one common child.
  • Any inheritance by the surviving spouse or partner registered for more than three years in the form of an usufruct or annuity, in cases where the decedent’s children of a previous marriage inherited the property subject to such right of usufruct or have responsibility for the annuity.
  • Any inheritance if its net value does not exceed €1,250.
  • Any legacy received by certain registered charities.

In order to avoid double taxation on property transfers, Luxembourg law applies unilateral exemption in the following cases:

  • Real estate property located abroad. Real estate located abroad must be declared in Luxembourg. A proportionate part of its value will constitute a deductible liability.
  • Movable goods located abroad that have been taxed abroad by reference only to the citizenship of the decedent.

4.2     Personal allowances and reliefs

For inheritance tax and death duty purposes, assets up to €38,000 in value passing to the surviving spouse or partner registered since more than three years in accordance with the provisions of the law dated 9 July 2004 are exempt in cases where they do not have common children.

Gift duties are reduced by 50% if gifts are made under the terms of a marriage contract or if a gift is made in view of a marriage.

5. Filing procedures

5.1     Date for payment of tax

Inheritance taxes must be paid, within six weeks, of receipt of the assessment issued by the local tax authorities.

The Luxembourg inheritance tax legislation foresees that the estate of nonresident heirs is frozen until they provide an additional guarantee. This provision does however not apply for Luxembourg resident heirs or legatees and for heirs and legatees having their residence in the European Economic Area (EEA).

With respect to gift tax, registration duties are due at the date of registration.

5.2     Filing procedure

The heirs and legatees must file a detailed declaration within six months of the date of the death if the death occurs in Luxembourg. The filing deadline may be postponed if the death occurs abroad.

This procedure is mandatory even if no inheritance tax is due.

If the deceased is not domiciled in Luxembourg, an individual who inherits real estate must file a declaration at each local tax office where the real estate property is located.

6. Assessments and valuations

6.1     Valuation rules and determination of the tax basis

Inheritance taxes are levied on the fair market value of the inherited assets less the liabilities of the deceased existing at the time of death (e.g., professional liabilities, domestic liabilities, funeral costs and unpaid taxes).

Death duties are levied on the fair market value of the inherited real estate without any other deduction than the debts in relation with the Luxembourg real estate.

With respect to gift tax, no deductions are available for gift tax purposes.

The taxable amount is established on the basis of the following valuation rules:

  • Real estate is valued at its fair market value as of the date of death or gift (an expert valuation may be requested).
  • An usufruct over movable goods or real estate is valued, as described below, under gifts with reservation.
  • Shares, bonds and accrued interest are valued at their market value at the date of death or gift.
  • Stocks listed on the stock exchange are valued at their fair market value (FMV) at the date of death or gift.

Special valuation rules exist with respect to the valuation of long leases, life annuities, property rents and other periodical remunerations.

For the purpose of determining the inheritance tax basis, the following assets are deemed to be aggregated to the taxable asset base:

  • Gifts made by the decedent within the year preceding his or her death, unless they were duly subject to gift duties.
  • Cash or other valuable assets a third party receives without tax, pursuant to a contract entered into by the deceased for the benefit of that third party (e.g., life insurance for the benefit of another) if no gift duties were paid at the date of the contract.
  • Movable goods or real estate property sold to one of the heirs within the three months preceding the death of the seller in cases where he or she reserved the usufruct over them.
  • Any liability written off under a testamentary document and, accordingly, treated as a legacy.

6.2     Usufruct and bare ownership

A gift where the donor has transferred the bare ownership of his or her assets (reserving the usufruct) is subject to gift taxes.

The value of the bare ownership and the usufruct (life usufruct) is determined according to the age of the donor at the time the gift is made.

Donor aged Usufruct                                                                                              Bare ownership
Less than 20 90% 10%
Between 20–29 80% 20%
Between 30–39 70% 30%
Between 40–49 60% 40%
Between 50–59 50% 50%

 

Donor aged Usufruct                                                                                              Bare ownership
Between 60–69 40% 60%
Between 70-79 30% 70%
Between 80-89 20% 80%
90 and over 10% 90%

The above valuation rules are based on the law of 26 March 2014 and should enter into force as of 1 April 2014.

The usufruct with a fixed duration is valued at 2/10 of the value of the full ownership per 10-year period, with the limitation that the value of the fixed duration usufruct should not exceed the value of the life usufruct as described above.

When the donor dies, the usufruct effectively ceases to exist and the bare ownership matures into full ownership. Neither gift taxes nor inheritance or death duties will apply at that time.

The above table is also applicable for inheritance tax and death duty purposes.

7. Trusts, foundations and private purpose funds

Under the law of 27 July 2003, Luxembourg ratified The Hague Convention of 1 July 1985 relating to the recognition of foreign trusts. It also revised the Luxembourg legislation regarding fiduciary agreements in order to facilitate the recognition of a Luxembourg fiduciary by other contracting states.

The same law also introduced different indirect tax measures in relation to trusts and fiduciary agreements.

Trust and fiduciary agreements are not subject to compulsory registration formalities even if they are established by public deed, before the courts or before any other Luxembourg authority. This is provided they do not own immovable property located in Luxembourg, planes, ships or boats for navigation on internal waterways registered in Luxembourg, nor any rights over such an asset that must also be transcribed, recorded or registered.

Voluntary registration is however possible.

Fiduciary contracts and trust deeds, which relate to assets or rights which the fiduciary or the trustee must retransfer within 30 years, are subject to a fixed registration duty of €12 when they are registered. The same applies to deeds effecting the re-transfer of the assets or rights to the fiduciant or to the settlor within that period.

In cases where the assets or the rights are definitively transferred, during or at the end of the fiduciary contract or trust agreement, to the fiduciary or the trustee and where the fiduciary contract or the trust agreement had been registered at the fixed registration duty of €12, the assets or rights transferred must be registered at the rates applicable under common law. Accordingly, the higher rates for sales are applicable, except for some specific transactions relating to the transfer of assets under pledge (which are only subject to the fixed registration duty). For real estate located in Luxembourg, property transfer tax amounts to 7% (10% if the real estate is located within the municipality of Luxembourg City). For movable property, the registration duty may vary from 1.2% to 6% upon voluntary registration. The transfer of movable property, other than by the way of a gift or an inheritance, is however not subject to compulsory registration. No percentage registration duty applies on the transfer of shares even if the transfer is registered, except for the transfer of units in partnerships owning a real estate located in Luxembourg.

In case of a gratuitous transfer of an asset or a right owed by a fiduciary or a trustee to a third-party beneficiary, gift tax is due depending on the degree of relationship between the beneficiary and the fiduciant or the settlor.

The same applies for the calculation of inheritance tax and death duties.

8. Grants

This does not apply.

9. Life insurance

In case of a contract made for the benefit or in favor of a third party (e.g., a life insurance contract), the cash and/or other assets that this third party is expected to receive at the moment of the decease (i.e., execution of the contract) are considered as collected as legacy by the beneficiary and thus included in the inheritance tax basis, except if the said stipulation was already subject to registration duties applicable for gifts.

If the stipulation is made by a person for the benefit of his or her partner/spouse as provided in the paragraph above, the cash and/or other assets that are received by the beneficiary are considered as a legacy for their full amount.

10. Civil law on succession

10.1     Succession

The succession of a person opens with his or her death. The date to be taken into consideration is the day of the decease. The succession opens at the last residence of the deceased and irrespective of the nationality of the deceased.

Luxembourg generally applies the law of the deceased’s domicile (as defined above) for movable assets and the law of situs for immovable property.

The liquidation of the succession will depend on whether the deceased has made a will or not. If there is a will, the succession will be liquidated in accordance with the provisions of the will.

In the absence of a will, the succession will be regulated in accordance with the legal order, i.e., a system of succession per stirpes, which divides the possible intestate heirs into different orders depending on the relation to the deceased person, while the closest applicable order excludes the more distant orders.

1st order Children and their descendants
2nd order Surviving spouse
3rd order Parents and their descendants
4th order Grandparents and ascendants
5th order More distant relatives (e.g., uncles, aunts, cousins)
No heirs State

10.2     Forced heirship rules

Luxembourg civil law protects the rights of the descendants of a deceased. In this respect, children are entitled to statutory shares of the estate. However, third parties may benefit from the gifts or legacies (i.e., the disposable portion) provided that the statutory compulsory shares are not denuded.

Family situation as of the death   Statutory share Disposable portion
1 child Half for the child Half
2 children Two-thirds for the two children One-third
3 children or more Three-quarters for the children A quarter

If the spouses have joint children or descendants, they are allowed to make mutual donations (either through a marriage contract or during the marriage) of:

  • The full ownership of the disposable portion and the usufruct of the balance of the estate. Or
  • The usufruct of the total estate.
Number of children Statutory share Surviving spouse
1 Half in bare ownership Half in full ownership and half in usufruct
2 Two-thirds in bare ownership One-third in full ownership and two-thirds in usufruct
3 and more Three-quarters in bare ownership One-quarter in full ownership and three-quarters in usufruct

10.3     Surviving spouse

Where the deceased leaves a surviving spouse only, he or she is in principle entitled to the full ownership of the estate. However, he or she can be disinherited by a testamentary document since he or she is not a protected heir.

If the decedent leaves both spouse and children, the surviving spouse has the choice of opting either for the usufruct of the family home with furniture or a part of the estate in full ownership depending on the disposable portion in accordance with the forced heirship rules.

10.4     Matrimonial regimes and civil partnerships

The matrimonial regime chosen by the spouse has an influence on the assets to be included in the estate. Three main marital regimes are available in Luxembourg:

  • The communauté réduite aux acquêts (the default regime laid down by law) under which assets are owned in common, except assets acquired before the marriage and assets acquired during the marriage through inheritance and gift.
  • The universal co-ownership rule under which all assets are owned in common by both spouses, regardless of whether the assets were acquired before or during the marriage.
  • The separate ownership regime under which each spouse retains sole title to assets and wealth he or she acquired before and during the marriage.

Should the spouses opt for the universal co-ownership rule with attribution to the survivor, the assets will automatically pass to the surviving spouse at the death of one of them. In this case, the succession is nil and thus not subject to inheritance tax.

10.5     Intestacy

A will is a legal document that regulates an individual’s estate after death.

In this respect, Luxembourg law recognizes the following three main types of wills: public will, mystic will and handwritten will. If there is no valid will at death, then the deceased’s estate passes under predetermined rules (see Section 10.1).

10.6     Probate

After the decease, the heirs and legatees may contact the notary in charge of the formalities of the estate left by the deceased

(or their own lawyer) in order to deposit the will in their possession or, if they are not aware of the existence of a will, in order that the notary could consult the Central Register of Wills to find out whether a will was filed with another notary.

However, for handwritten and mystic wills, the heirs or legatees will be required to submit the will either directly or via a notary to the President of the District Court who will prepare minutes of the presentation, the opening (for a mystic will, the opening should be done in the presence of the notary and witnesses who signed the subscription deed for the mystic will) and the general condition of the will. After this procedure, the President of the District Court orders the deposit of the will for execution in the hands of a notary designated by him.

This formality is not required for a public will where the notary may immediately liquidate the estate left by the deceased.

11. Estate tax treaties

11.1     Unilateral rules

Luxembourg applies unilateral measures in order to avoid double taxation as explained above.

11.2     Double-taxation treaties

Luxembourg has not yet concluded any double-tax treaties for inheritance or for gift tax purposes with other countries.