Luxembourg, unlike many other EU countries, does not have high taxes if you inherit property or money from a family member or spouse, but it does have strict laws on inheritance, particularly regarding automatic heirship.
Inheritance tax applies to the full value of all the wealth (movable and immovable assets) of a deceased person that was living in Luxembourg. This does not include immovable assets or real estate held in another country, which are generally subject to tax laws in that country.
Transfer tax applies only to immovable assets in Luxembourg belonging to the deceased who was not living in Luxembourg.
Immovable assets – your property (or properties) in Luxembourg.
Movable assets – your furniture, cars, shares, cash, life assurance policies etc.
These taxes are payable regardless of whether those inheriting the assets live in Luxembourg or not, as tax is calculated based on where the deceased was living.
However you can make a will in Luxembourg stating that you want the law of the country of your nationality to apply, although this may not prevent your heirs from paying transfer tax. More information on planning cross-border inheritance can be found here.
Inheritance tax (IHT)
IHT is calculated on the net value of the estate including immovable assets in Luxembourg, and movable assets held in Luxembourg and abroad. (Depending on the nationality of the deceased, IHT may be collected on movable assets in the country those assets are located. For example, money in a bank account held in France may be taxed in France).
Liabilities for debts, unpaid taxes and funeral costs will be deducted from the net estate. Assets such as shares will be valued on the price on the day of death, as will any properties. If the deceased was married, their assets will also include their share of jointly owned assets.
Movable assets donated to family members a year prior to death are not included. Likewise, property transferred at least three months before death may not be included in the final inheritance net assets. You can find more information on the rules around gifts to family members or donations to legal entities here.
Tax rates are calculated on the net share of each beneficiary, from the legal portion (as stated by Luxembourgish law) and any additional or extra-legal provisions made in a will from the deceased.
Automatic heirship for children
Luxembourg has an automatic system of heirship which gives an automatic claim on the estate in Luxembourg regardless of any will (note for example that this is not like the UK, where fully-grown independent children do not have any entitlement to inheritance).
Children take priority, and can inherit 50% of the net worth of the estate (1 child), 66.6% (2 chidren) or 75% (3 children). You can find a complete breakdown here.
Surviving spouse or registered partner
The spouse isn't generally given a portion, although this will depend on the marriage contract that you have in place. A universal community marriage contract with a surviving spouse attribution clause, will ensure that any shared real estate or assets will automatically be allocated to the surviving spouse until he or she dies.
This is not the default regime in Luxembourg, which allocates community assets on a 50/50 basis. On death of a spouse, as in divorce, the community contract is dissolved, and half the estate (that belonging to the deceased) will be subject to the rules of heirship in Luxembourg.
If you choose to change your marriage contract so that the surviving spouse inherits all assets, this will not change the legal system of heirship and inheritance, as the descendants of the deceased will always remain heirs in reserve.
You can also opt that your spouse owns a reserved portion but has usufract (can live in a property for example) of the children's portion or usufract of the whole estate until his or her death. This can only be done if your children are also those of your spouse.
If you recorded your property as separate in your marriage contract, then all the property of the diseased spouse will be divided by legal heirship.
You can amend your marriage contract with a notary if you want your surviving spouse to inherit all your shared assets. You can find more information on this on Guichet.
The first €10,000
There is no tax for legal/reserved portions left to ascendants (parents, grandparents), descendants (children, grandchildren), spouses or partners (where partnership was filed at least three years before death).
Spouses and registered partners also pay no tax on extra-legal or unreserved provisions, but ascendants and descendants must pay 2.5 to 5% tax.
Rates vary for siblings, adoptees, other relatives and unrelated inheritors up to 15% on the first €10,000.
Rates after €10,000
After this figure, the rate increases on a sliding scale which is multiplied against the original base rate and is apportioned according to the total net value of the estate. You can find this sliding scale and rates here. These seem high as a percentage, but remember they are multiplied against the original base rate.
The government gives an example as follows:
The deceased is a single man with no children whose parents are also deceased. He leaves his entire estate of €550,000 net worth to his sister. The applicable base rate for a sibling is 6% plus the amount falls into the band 14/10 (or 140%). So the IHT will be 6% plus (6% x 1.4) = 14.4%. The IHT due will be €79,200.
If the deceased was not living in Luxembourg but owned a property in the country, the exact same rates of tax will apply to that property as are applied in IHT and in the same variance of relationship to the deceased as applies to IHT.
Calculating and paying IHT or transfer tax
Inheritors must file a declaration of inheritance or transfer tax upon the death of the person they are inheriting from with the Administration de l'Enregistrement des Domaines et de la TVA (Registration, Duties, Estates and VAT Authority) at 1-3 Avenue Guillaume in Luxembourg City.
The administration office will calculate the taxes and send a request which should be paid within six weeks of receipt. If you have a high-value estate (given property prices currently), it may be worth considering setting up financial reserves to help your family pay any IHT without having to sell their main residential property.
You can find more information on the guichet.lu site here. Next week the LT Expat Hub will feature an article on making a will in Luxembourg.
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