Will my children pay inheritance tax on what they inherit?
It comes down to one thing: the legal share, or beyond it? The myth that worries so many families: believing a child always pays tax on a parent's estate. False in Luxembourg. In the direct line (parents to children and grandchildren, or the reverse), the legal share — the portion the law grants the heir — is exempt from inheritance tax: the base rate is 0%. Only the part received beyond the legal share (by will, preferential legacy, out of the estate share) is taxed: 2.5% on the disposable portion left out of share, then 5% on the surplus. Between spouses and between partners registered for at least 3 years, it is also 0%. A net estate not exceeding €1,250 and property located abroad are exempt too. Beware, though: above €10,000 of net taxable share, a surcharge increases the applicable rates.
📋 The rules
- In the direct line, the legal share going to a child or grandchild is exempt: base rate 0%.
- The part received beyond the legal share in the direct line is taxed at 2.5% (disposable portion out of share) then 5% on the surplus.
- Between spouses and between partners (partnership registered ≥ 3 years before death), the base rate is 0%.
- Also exempt: a net estate ≤ €1,250 and property located abroad of a Luxembourg resident.
- Above €10,000 of net taxable share, the base rates are increased by a surcharge under a scale.
🔓 Exceptions
- Outside the direct line, tax applies from the first euro: siblings 6%, uncles/aunts and nephews/nieces 9%, third parties 15% (legal share).
- Gifts made in the year before death, and certain transfers to a relative less than 3 months before death, may be added back.
- A life-insurance benefit to a third party or a matrimonial advantage may bring assets into the taxable estate despite the direct-line exemption.
⚠️ Penalties & fines
The main risk is not the rate but the filing failure. Heirs must file an inheritance declaration with the Registration, Estates and VAT Authority (AED), which then issues the demand for payment. The tax is in principle payable within 6 weeks of that demand; beyond it, late interest runs. Under-valuing a property or "forgetting" a foreign account is not harmless: the AED can reassess the value, claim the tax avoided and add surcharges. Wrongly assuming that "the direct line is exempt, so nothing to declare" is a common trap: the exemption covers only the legal share, and a will favouring one child creates a taxable part. Finally, until the estate is settled, the division and sale of the assets remain blocked, which costs time and money. Keeping clear records of values and debts is the best protection against a dispute with the tax authority.
📎 Official sources
- Legilux · law of 27 December 1817 on inheritance duties →
- AED · indirect-tax portal (successions, tariff) →
- Guichet.lu · inheritance tax on an estate (official portal) →
❓ Frequently asked
Will my children pay tax on my house in Luxembourg?
On their legal share in the direct line, no: the base rate is 0%. Tax appears only if a child receives, by will or preferential legacy, more than the legal share, and only on that extra portion.
From when does the direct line become taxable?
Only on the part received beyond the legal share, taxed at 2.5% on the disposable portion out of share and then 5% on the surplus. The legal share itself stays exempt, whatever the total value of the direct-line estate.
Does the surviving spouse pay inheritance tax?
Between spouses, as between partners registered at least three years before the death, the base rate is 0%. The surviving spouse or partner is therefore in principle exempt from inheritance tax in Luxembourg.
Must I declare a bank account held abroad?
Yes, for a person domiciled in Luxembourg, movable assets located abroad form part of the estate. Only immovable property located abroad is expressly exempt, under certain conditions set by law.
Within what time must the tax be paid?
The duties are in principle due within six weeks of the AED's demand for payment, which follows the filing of the inheritance declaration. After that period, late interest is added to the amount claimed.
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