Succession planning in Luxembourg, family holding, inheritance and gifting of shares.

What inheritance tax applies in Luxembourg?

In Luxembourg, inheritance tax applies to a resident's estate on all assets except real estate abroad, and the legal share passing in the direct line is exempt. Luxembourg has two taxes. Inheritance tax (droits de succession) applies to the estate of a person whose last domicile was in Luxembourg: it covers all movable and immovable assets, except real estate located abroad.

Transfer duty on death (droits de mutation par décès) applies to the estate of a non-resident and covers only real estate located in Luxembourg. Both rest on the amended law of 27 December 1817 and on the rates published by the Administration de l'enregistrement, des domaines et de la TVA (AED).

In the direct line, descending and ascending, the legal share, the portion the law assigns to the heir in the absence of a will, is exempt. What the heir receives beyond it, by will or legacy, is taxed. The surviving spouse, and a partner whose partnership has been registered for at least three years, also benefit from an exemption subject to conditions, in particular regarding common descendants. Between siblings, then uncles and nephews, then unrelated persons, the rate rises by degree and surcharges apply to the largest shares.

The inheritance return is filed with the AED, by the heirs or by the notary they instruct, and requires a valued inventory. This is where a holding's annual accounts, approved and filed, save time and avoid an argument about value.

Why set up a family holding to transfer wealth?

A family holding lets you transfer shares rather than a list of assets: one object, divisible, that can be gifted in tranches, split between usufruct and bare ownership, or governed by an agreement. A family that directly owns a portfolio, participations and real estate transfers as many assets as there are lines: each follows its own rules of form, valuation and publicity. Placed in a holding company, these assets become shares: a single object to transfer, divisible to the unit, that can be gifted in tranches, split between usufruct and bare ownership, or governed by an agreement.

The vehicle depends on the assets. The SOPARFI suits participations and real estate held through subsidiaries; the SPF is reserved for the financial assets of individual investors and excludes any commercial activity. The SOPARFI or SPF comparison decides criterion by criterion. A top holding above sub-holdings by asset class then allows one branch to be transferred to one child without touching the others.

The holding does not remove inheritance tax and is not an avoidance tool: it makes the transfer executable, documented and compliant. An heir resident in France, for instance, remains taxable in France on the shares received, under the rules described below.

Gifting shares with retained usufruct: what must the holding record?

A gift of holding shares with retained usufruct is made by notarial deed: the parents give the bare ownership, keep the dividends and the vote provided by the articles, and the children become full owners on death without a further deed. A hand-to-hand gift is not suitable for registered shares.

Inside the holding, three entries follow the deed: the update of the shareholder register, which distinguishes usufructuary and bare owner, the filing with the register of beneficial owners if control thresholds change, and, where relevant, the adaptation of the articles or the agreement on the allocation of rights. A split of ownership missing from the registers is the first source of dispute on death.

Registration duties on a notarial gift depend on the degree of kinship and are collected by the AED. Whether to give rather than bequeath, and the timing of gifts, belong to the notary's and the lawyer's advice: we supply the value of the shares and the costed scenarios that allow the decision.

What value should be used for transferred holding shares?

The value of transferred holding shares is built from adjusted net book assets: underlying participations and real estate at their real value, debts and off-balance-sheet commitments deducted, then an adjustment for a minority holding or an approval clause. Whether for a gift or an inheritance return, the deed states that value, and it binds the heirs towards the administration.

This requires approved and filed annual accounts, participations revalued on evidence and, where the holding sits above several entities, consolidated accounts that give an overall reading. We prepare this valuation file and hand it to the notary: a documented figure is rarely argued, an estimated figure is contested.

France-Luxembourg inheritance: which country taxes the heirs?

In a France-Luxembourg inheritance, France taxes everything received by an heir domiciled in France for at least six of the ten years before the death, wherever the assets are: a parent settling in Luxembourg does not shelter children who stayed in France. Article 750 ter of the French tax code distinguishes three situations. If the deceased was domiciled in France, everything is taxable in France.

If the deceased was domiciled outside France and the heir was domiciled in France for at least six of the ten years preceding the death, everything that heir receives is taxable in France, wherever the assets are. In the other cases, only assets located in France remain taxable in France.

France and Luxembourg have no treaty on inheritance or gift tax; the treaty of 20 March 2018 covers only income and wealth taxes. Double taxation is handled through the credit of article 784 A CGI, limited to foreign tax paid on assets located abroad. Real estate in France, or shares in a French real-estate-rich company, stay in the French tax base whatever the structure.

For a French business owner, the honest comparison includes the Dutreil agreement (article 787 B CGI): its partial exemption on the value of the shares transferred is often more effective than a change of residence. This French tax analysis belongs to a tax lawyer; we prepare the estate data that lets them compare scenarios. Settling in Luxembourg itself, residence permit and tax residence, is covered on the investor immigration page.

Which law governs the succession of a Luxembourg resident?

The law of the deceased's last habitual residence governs the whole succession, under Regulation (EU) 650/2012 applicable to successions opened from 17 August 2015, unless they chose the law of their nationality by will. A French national resident in Luxembourg therefore has a succession governed by Luxembourg law, unless they opted for French law.

Both laws provide a reserved share for children but do not set it the same way, and the choice of law does not change taxation: it decides who inherits what, not who pays what. The analysis of this choice belongs to the notary and the lawyer; we draw its consequences in the structure, for instance on the allocation of shares between family branches.

How to organise the governance of a family holding?

The governance of a family holding is set before the transfer, in a shareholders' agreement: approval, pre-emption and exit clauses, roles of family managers and, where needed, of an independent director who arbitrates, calendar of meetings and distributions, information rights of non-managing shareholders. Without these rules, a holding passed to several children becomes a disguised joint ownership.

Our role is documentary and operational: keeping the registers, notices and minutes, consolidated reporting readable by non-financial shareholders, follow-up of annual obligations. The family office extends this set-up when the family centralises several vehicles. Drafting the agreement remains the lawyer's work.

How much does a transfer structure cost in Luxembourg?

A transfer structure is paid in two stages: set-up (incorporation or reorganisation of the holding, contribution of assets, notarial deed, agreement), then annual operation (bookkeeping, annual accounts, tax filings, subscription tax for an SPF or minimum net wealth tax for a SOPARFI, registers, meetings). The firm's fees appear in the SOPARFI fee schedule and are recalled at the bottom of this page; the notary's fees and registration duties come on top.

The right indicator is not the first year but the cumulative cost over the holding period, set against what the structure avoids: multiple deeds, joint ownership, contested valuation, double taxation without credit. We cost this comparison before incorporating anything, and sometimes the conclusion is to create nothing.