Succession: the tax consequences abroad may be misunderstood (Photo: Lombard Odier)

Succession: the tax consequences abroad may be misunderstood (Photo: Lombard Odier)

Luxembourg residents sometimes have an incomplete view of the taxation applicable to their succession. Often limited to Luxembourg aspects, their planning needs to anticipate certain consequences abroad.

Luxembourg offers a favourable tax framework for the transfer of wealth from one generation to the next. The potential exemption from inheritance tax between spouses, or in the direct line (for the legal share), means that families can approach the question of inheritance with peace of mind. Ignoring the international context could, however, upset this perception due to the application of certain foreign tax rules.

Surprising real-life examples... surprising examples

The classic example of inheritance tax being levied simply because an heir is resident for tax purposes in certain countries such as France, Germany or Spain at the time of the transfer of assets is particularly illustrative. The payment of inheritance tax on the transfer of a property to the country where it is located is also well known. However, it is more surprising that a country other than the country of residence of the deceased or the heir should decide to tax the transfer of a purely financial asset by deeming it to be located on its territory. However, these rules are now strictly applied by certain countries, such as France, the United Kingdom and the United States, with tax rates of up to 45% in France and 40% in the other two countries. Although there is often talk of revoking the US inheritance tax system, the rules do apply today. This generally applies to financial securities (shares, bonds, funds, etc.) issued by a company located in the United States.) issued by a company located there, but it may also involve the deposit of cash with a local banking institution

The heirs of a Luxembourg resident who holds American, English or French shares on his death could therefore be subject to the inheritance tax of these countries without restriction, as no tax treaty has been concluded on the subject by Luxembourg.

Possible solutions

Everyone will perhaps remember that in the context of global wealth diversification, these surprising rules will constitute an immutable constraint.

They should instead be seen as a challenge, which can be met effectively through methodical estate planning. Providing for an alternative investment or indirect holding of these assets, for example, can prove effective.

In any event, anticipating this subject with your banker or tax adviser now appears to be unavoidable.

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, Global Head of Wealth Planning

, Wealth planner