Luxembourg’s 0% Debate
by Gonçalo Gomes Cardoso
Source: Stock Picture
Direct heirs can pay nothing on their legal share. A stranger can lose close to half. One exceptional estate has put that contrast back in the spotlight.
In the first six months of 2026, the Luxembourg state collected €493.1 million in inheritance duties, compared with €57.8 million in the same period last year. In response to questions from Paperjam on 15 July, the Finance Ministry said that the €435.3 million increase was attributable to a single inheritance that generated around €400 million in tax revenue. The €435.3 million increase represents more than half of the year-on-year increase in receipts at Administration de l’enregistrement, des domaines et de la TVA (AED), and around one-third of the roughly €1.4 billion increase in total state revenue. For comparison, that increase is equivalent to what the tripartite package will cost across 2026 and 2027.
From 1798 To Today
The foundation of Luxembourg’s modern inheritance-tax system date to the French period, when Luxembourg was the Département des Forêts and the law of 22 frimaire an VII (1798) extended registration duties to transfers on death. (1)
The Congress of Vienna ended that period in 1815, making Luxembourg a Grand Duchy in personal union with William I, King of the Netherlands. (2) What followed was shaped by Dutch legal thinking. In 1817, the Netherlands introduced a system that applied inheritance tax rates according to degree of kinship, ranging from 4% to 10%, while fully exempting heirs in the direct line as well as spouses who had children in common. (1)
In 1841, the exemption was limited to the legal share. Additional tenths were introduced in 1916 and extended to 22/10 in 1920. A wider base tariff ranging from 2% to 15% followed in 1921. In 1984, the framework for the surcharge scale that still forms part of the current regime was implemented, and it was subsequently amended in 2001. (1)
Luxembourg’s Tax System
Inheritance tax is calculated on the net value of the estate, determined by subtracting liabilities from assets and then applied share by share. Assets include all movable property located in Luxembourg or abroad, as well as all immovable property situated in Luxembourg. Liabilities consist of outstanding debts on the day of death and funeral expenses.
What each heir owes depends on the degree of kinship and the legal portion that the heir receives. Anything above that amount is considered extra-legal and becomes taxable even for children. Luxembourg’s forced-heirship rules set a clear limit. Children must receive a reserved share that cannot be reduced, which is half the estate for one child, 2/3 for two children and 3/4 for three or more.
Direct heirs such as ascendants and descendants are fully exempt on their legal share and pay 2.5% and/or 5% on any extra legal portion. Spouses and registered partners for at least three years before the death are fully exempt from inheritance tax on both the legal and extra‑legal portions. The only exception applies to successions opened before 1 January 2018, where a 5 % base rate is charged between spouses or partners, if they had no children or common descendants. Siblings are taxed at 6% within the legal share and 15% beyond it. Uncles, aunts, nephews, nieces, and beneficiaries of simple adoptions face a rate of 9% within the legal share and 15% on extra‑legal parts. Great‑uncles, great‑aunts, and their descendants are taxed at 10% within the legal share and 15% beyond. All other persons pay a flat 15% regardless of the share.
Those are the base rates, and they are not the end of the calculation. Above €10,000, a surcharge scale applies to each net share, rising from 1/10 to 22/10 for amounts above 1.75 million. At the top of the scale, an unrelated beneficiary can face nearly 48%. (3)
How Luxembourg Compares
In France, direct descendants benefit from a €100,000 allowance, provided they have not used this allowance in the fifteen years preceding the death. Then the tax becomes progressive, starting at 5% and rising to 45% for the taxable portion above €1,805,677. The system applies progressively higher rates as the taxable portion increases, placing France among the European countries with the highest top marginal rates.
For other heirs, the allowances are significantly lower: €15,932 for siblings and €7,967 for nephews and nieces. The applicable rates on the taxable portion after the allowances are considerably higher than on the direct line. Siblings face rates of 35% and 45%, depending on the amount inherited, while more distant relatives and unrelated beneficiaries are taxed at flat rates of 55% or 60%. (4)
In Germany, the tax system groups beneficiaries into three tax classes, which determine the applicable allowance and the tax rate on the amount exceeding that allowance. Tax Class I includes spouses, registered partners, children, adopted and stepchildren, grandchildren whose parents are already deceased, and parents or grandparents inheriting from their descendants. Tax Class II comprises parents and grandparents in the case of gifts, siblings, nieces and nephews, children‑in‑law, parents‑in‑law, and divorced spouses. Tax Class III covers all other beneficiaries.
The allowances for Tax Class I range from €500,000 for spouses and registered partners to €400,000 for children, adopted and stepchildren, and grandchildren whose parents are already deceased, down to €100,000 for parents and grandparents inheriting from their descendants. The rates start at 7% and rise gradually to 30% for inheritances exceeding €26 million.
The other tax classes receive a €20,000 allowance. For Tax Class II, rates begin at 15% and increase up to 43%, while Tax Class III starts at 30% and reaches 50% for the highest inheritance values. (5)
In Belgium, inheritance tax is set at the regional level, but the structure for direct heirs is broadly similar across Flanders, Wallonia, and Brussels. Flanders taxes the direct line from 3% to 27% above €250,000. Brussels and Wallonia go from 3% to 30% above €500,000.
For siblings, the differences are more pronounced. In Brussels and Wallonia, rates range from 20% to 65%, whereas Flanders applies a narrower band of 25% to 55%.
For more distant relatives such as uncles, aunts, nephews, and nieces, rates range from 35% to 70% in Brussels and 25% to 70% in Wallonia, while Flanders again applies 25% to 55%
For unrelated beneficiaries, Brussels applies rates starting at 30% and Wallonia at 40%, both rising to 80%, whereas Flanders maintains its upper bracket of 25% to 55% (6)
After analyzing the tax systems of Luxembourg’s neighboring countries, we can say that its system for direct heirs differs noticeably. Luxembourg applies taxation only to the portion exceeding the legal share, and the rates remain limited to 2.5% or 5%, while spouses and registered partners are exempt under the current rules. In contrast, France combines a €100,000 allowance with a progressive scale that reaches 45%. Germany applies rates between 7% and 30% after substantial allowances. Depending on the region, Belgium taxes the direct line between 3 and 27 or 30%.
These comparisons show that the treatment of direct line heirs varies significantly across Europe. Luxembourg’s tax structure, however, reflects a system in which the family unit and the continuity of family assets play a central role in determining the tax burden.
Wealth concentration and intergenerational transfers
The Banque centrale’s latest household survey, published in April 2026 with 2023 data, puts mean net wealth at €1,157,000 per household and median at €676,000. However, both fell in real terms after 2021, by 18% and 15% respectively.
81% of household assets are tied to real assets, where the main residence and other real estate together make up 91% of the real assets.
In 2023, the wealthiest 1% of households held 13.3% of total net wealth, the top 10% held 46.7%, and the bottom half held 8.8%. The share held by the wealthiest 1% has fallen substantially since 2010, when it stood at 21,3%.
Around 30% of Luxembourg households have received a significant private wealth transfer, according to a BCL working paper published in June 2023. These transfers include inheritances and gifts made during the donor’s lifetime. 80% were inheritances, and 20% were gifts, mainly from parents (77%) and grandparents (9%). The link with housing tenure is strong. Among homeowners, 38% received such a transfer, compared with only 12% of renters. The BCL estimates that receiving a private wealth transfer above €100,000 is associated with an 11-15 percentage point increase in the probability of homeownership.
These patterns are connected to inheritance inequality and wealth concentration. In a housing market where prices have outpaced incomes, as reflected on Eurostat’s house price-to-income indicator, private transfers can materially affect who is able to afford a home. They provide either a home itself or the financial means to acquire one, potentially giving recipients an advantage in accumulating wealth.
A Swedish study by Adermon, Lindahl and Waldenström published in the Economic Journal in 2018 finds intergenerational links in wealth. The parent-child rank correlation is between 0.3 and 0.4, and the grandparent-grandchild correlation is between 0.1 and 0.2. Inheritance and gifts play a central role in this transmission. They account for at least half of the parent-child wealth correlation, while earnings and education together explain only about 1/4. These findings indicate that private transfers can play a major role in the reproduction of wealth across generations.
On its website, The Chambre des Salariés states that a zero rate in the direct line lets the great majority of transfers pass untaxed, reinforcing inequality from one generation to the next. Its proposal is not to tax all inheritances but to introduce a threshold. Modest transfers are protected, and very large ones are taxed, so that ordinary households are protected. The CSL presents this as a matter of fairness.
Renewed attention
The exceptional case has opened space for debate. As reported on 16 July by L’Essentiel. Franz Fayot (LSAP) considers around 10 million euros to be the point at which higher taxation could become justified. At the same time, he also acknowledges that many individuals come to Luxembourg to structure their wealth and plan their inheritance, highlighting the importance of the country’s private banking sector. A CSV member of the parliament, who wished to remain anonymous, said that he is open to a debate on taxation given the current context. Laurent Zeimet (CSV) reaffirmed that direct line transfers should remain untaxed as recognition of lifetime effort and family continuity, and Fred Keup (ADR) argued that capital should remain within families and expressed his opposition to increasing tax rates on the direct line.
The debate around inheritance taxation ultimately reflects how Luxembourg sees the role of the state in the transfer of wealth. The exceptional case of 2026 has simply reminded the country that its long-standing model is a choice, not an inevitability. The question is whether that choice still aligns with the social and economic context of today’s Luxembourg.
Disclaimer: The information presented in this article is intended solely for general informational purposes and should not be interpreted as legal advice. Laws and regulations may change over time, and the information provided may not reflect the most recent legal updates or be suitable for your individual circumstances. You should consult a qualified legal professional before making decisions or taking action based on this information. The author and publisher assume no responsibility for any inaccuracies, omissions, or outcomes resulting from the use of this content.
