Luxembourg IHT Law Under Fire

by Ulrika Lomas, Tax-News.com, Brussels

29 June 2010

It has recently emerged that the European Commission has officially asked Luxembourg to amend its legislation on inheritance tax.

The legislation in question stipulates additional conditions for non-resident heirs and, in particular, freezes their entire estates until they provide 'an additional guarantee'. Given that the freeze rule does not apply to resident heirs, the Commission considers that this therefore constitutes a discriminatory practice, is disproportionate, if not unjustified, and is contrary to the provisions contained in the Treaty on the Functioning of the European Union concerning the free movement of capital.

Under the existing regulations, when a resident dies, the government of Luxembourg is owed a debt equivalent to the amount payable in inheritance tax by the heir. In order to recover this debt, the government of Luxembourg can avail itself of certain guarantees: a privileged lien on all the movable property and/or a legal mortgage on all the immovable property located in Luxembourg bequeathed in the inheritance.

A non-resident heir has to provide an additional guarantee for the payment of the amount due before being able to take possession of the inheritance. The amount of the guarantee is set by the judge. If the heir is not able to provide such a guarantee, the inherited assets are frozen until such time as the guarantee has been put in place.

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