1.Flemish 'misery tax' eased

Transcription

1 Lloyd Georgelaan 11 I 1000 Brussels Contents 1. Flemish misery tax eased 2. Donating real estate cheaper in Flanders 3. The Brussels Region is moving into line on favourable rates for real-estate donations in the Flemish Region, while the Walloon Region is still lagging somewhat behind 4. Sales duty sometimes 15% in the Walloon Region 1.Flemish 'misery tax' eased Eric Spruyt, partner notary, Berquin Notarissen, Prof. KU Leuven and Fiscale Hogeschool March 2016 If real estate located in Flanders belongs to several owners indivisibly and one of them takes over the undivided parts from the others, then in principle a division duty of 2.5% is payable on the total sales value of the real estate (Article , Article and Article of the Flemish Tax Code). On 1 January 2015, the rate was reduced to 1% when the end to indivisibility occurs in the context of a 'relational break-up, hence the term 'misery tax (Flemish Decree of 19 December 2014, Belgian official journal of 29 January 2015, ed. 2). The lower rate of 1% only applies, however, if the relational break-up and the accompanying division of the real estate take place under certain circumstances and subject to the fulfilment of specifically defined conditions. As of 1 January 2016, the scope of application of this favourable rate has been made considerably more flexible (Flemish Decree of 18 December 2015 containing provisions accompanying the 2016 budget, Belgian official journal of 29 December 2015, 79981). General Since 1 January 2016, the lower rate of 1% has applied if the division of the real estate or the cession of the undivided parts:

2 1. between former spouses, takes place after or takes effect as a result of divorce; 2. between former legally co-habiting partners, takes place within a period of three years following the end of the legal co-habitation in accordance with Article 1476, 2 of the Civil Code and on condition that on the day of this termination, the individuals had been living together for at least one year. Spouses (Former) spouses now benefit from the 1% rate for any division (or cession of undivided parts) that takes place: after the divorce (divorce by mutual consent or conflictual divorce, divorce on the grounds of irreversible breakdown OR through the divorce (divorce by mutual consent). Here the arrangement applies: without any conditions as to term irrespective of the number of real-estate properties involved in the division regardless of the nature of the real-estate property: it may be the family home (which is practice is usually the case), but equally well it may be other real-estate property (investment property, building land, property used for professional purposes, etc.) as regards multiple transactions ending undivided ownership spread over time. As regards divorce by mutual consent, since 1 January 2016 contrary to the previous situation it is no longer required that the division or cession is agreed in the 'deed of settlement (that is the notarial certificate of divorce which is the first stage in the procedure). A later division (or cession) of real-estate property that remained indivisible when the divorce agreement was drawn up (whether temporarily or not), can also take place at the 1% rate, without the requirement for the later end to the indivisibility to be settled or the prospect of this to be included in the deed of settlement itself. In the case of conflictual divorces, the division or cession can now take place at 1% after the settlement-division and there is no longer any requirement for this to occur 'with' the settlement division. Here again, it is now perfectly possible that in the context of the agreement on the settlement-division, one or more real-estate properties may remain in undivided ownership temporarily and the actual division may take place in a later phase. As regards conflictual divorces ( divorce on grounds of irreversible breakdown), the Flemish tax authorities have added a specification (position No of 12 October 2015). This states that in fact, the 'divorce on the grounds of certain facts' is the precursor of the actual divorce on the grounds of irreversible breakdown. This is why VLABEL has decided that the 1% rate can also be applied to settlementsdivisions that take place now, in the aftermath of an old divorce on the grounds of certain facts. Today this tolerance has lost every use as of 1January 2016 the law draft has been adapted. Legally co-habiting partners

3 As regards division or cession after the end of the legal co-habitation, the period within which the division has to take place unlike the arrangement that applied previously has been extended from one year to three years. The requirement that the legal co-habitation must have lasted at least one year has, however, remained in place. The relational break-up that takes place between actual co-habiting partners and that is accompanied by the division of a real-estate property remains subject to the basic rate of 2.5% (Article , 1 st paragraph Flemish Tax Code) under the new arrangement, as well. Effective date The new rules have applied since 1 January More specifically, any (private) agreements of division or cession of undivided parts concluded as of this date will be able to benefit from the new system irrespective of the date of the divorce. A division (or cession) that was agreed before 1 January 2016 subject to a suspensive condition which is fulfilled after this date will also be able to benefit from the new arrangement. This can be seen from a position adopted by the Flemish Tax Authorities ( VLABEL position No of ). Situation in the Brussels and Walloon Regions The legislators in Brussels and the Walloon Region have left the law on division unchanged for the time being. The (old) federal rate of 1% still applies in the regions (Article 109 Br. & Wal.W.Reg.). And this rate applies irrespective of the circumstances in which the division takes place and therefore also, but not exclusively, in cases of relational break-up. Moreover, in the event of relational breakup, no specific conditions are imposed which would not apply for divisions that take place within another context. The Brussels or Walloon arrangement applies if the real-estate property that is the subject of the division is located in one of these regions. The tax residence of the assignee or the assignor has no impact. ********************

4 Lloyd Georgelaan 11 I 1000 Brussels 2. Donating real estate cheaper in Flanders Eric Spruyt, notary, prof. KU Leuven and Fiscale Hogeschool March 2016 The cost of donating property in Flanders has been drastically reduced. Those who carry out energy-saving renovation work pay even less. Since 1 January 2015, the registration and succession duties have been laid down in a new tax code, the Flemish Tax Code. Succession duties (successierechten) are now called inheritance tax (erfbelasting) and gift duties (schenkingsrechten) have been renamed gift tax (schenkbelasting). Far more important, however, is that since 1 July 2015, donating real estate has become far cheaper. The residence of the donor counts! The Flemish gift tax and its reduced rates for the donation of real estate (houses, land, apartments) only apply if the donation is located in the Flemish Region. The only criterion considered is the tax residence of the donor, at least when this person is an inhabitant of Belgium. The location of the donated property plays no role. If you live in Antwerp and you donate a house in the Ardennes, you can do this at Flemish rates. There are three exceptions to this principle: 1. You have moved frequently. If you, as a door, have lived in various regions in the past five years, then the place where you lived longest counts.

5 2. You live abroad. Then the location of the real estate counts. If you went to live in Spain when you retired and you want to donate your apartment in Liège to your son, then Walloon gift duties will be levied. 3. You donate a building on which energy-saving renovation work is then carried out. In this case, the rate will be even lower (see below), but the property must be in the Flemish Region (i.e. donor and property in Flanders). What is new? - Fewer categories: there are now only two categories: o o rates for donations in the direct line/between partners (married couples, legally cohabiting partners and actually co-habiting partners who have lived together for one year without interruption) rates for donations between all other persons (see table) - Fewer brackets - Lower rates: o o in the direct line/between partners: in the lowest bracket you still pay 3 %, but up to a bracket of 150,000 (previously up to 12,500) between other persons: a rate of 10 % up to 150,000 (previously or 30 % up to 12,500) and the highest rate is now 40 % (previously up to 80 % for outsiders ) Figures that appeal to the imagination Single person donates in the direct line Anja donates an apartment in Ghent (value 250,000) to her son Bart. Gift tax payable previously: 26,625 Gift tax payable since 1/7/2015: 13,500 A reduction of 13,125 Brother donates to sister Karel donates a residence located in Anderlecht (value 250,000) to his sister. Gift tax payable previously: 121,875 Gift tax payable since 1/7/2015: 35,000 A reduction of 86,875

6 Sugar aunt donates to nephews Lies donates a rented apartment building consisting of two apartments, located in Kortrijk (value 500,000) to her two nephews, half each in indivisible ownership. She retains usufruct, the nephews only receive bare ownership. The gift tax is calculated on the basis of two donations, each of 250,000. The gift tax is calculated on the value in full ownership of the donated property. Donation from aunt Lies to nephew A: gift tax payable since 1/7/2015: 35,000 Donation from aunt Lies to nephew B: idem: 35,000 Total gift tax payable since 1/7/2015: 70,000 Gift tax payable previously: 268,750 A reduction of 198,750 Addition reduction for energy renovation and rental of good-quality housing In addition to the general rate reduction, the Flemish government offers two tax incentives: - one in the event of energy-saving renovation of the donated real estate - one in the event of the rental of high-quality housing. In each case, this is a deferred reduction. Initially, you pay the usual (reduced) rate on the donation of the real estate. When it later appears that you fulfil the renovation/rental conditions, you can obtain an additional reduction and the tax authorities refund the difference. Conditions: - The donated property is located in the Flemish Region. For the additional reduction upon rental, it must be housing; for the energy renovation this is not required. - The person who receives it must have renovation work worth at least 10,000, excluding VAT, carried out within five years of the date of the official deed of donation (e.g. a heat pump, solar boiler, etc) or obtain a certificate of conformity and conclude a registered lease for at least nine years within three years. And this period of nine years must actually be achieved, otherwise the tax authorities can reclaim the refunded gift tax! - For renovation: the work must be invoiced by a contractor who issues a certificate showing that the invoices actually related to one of the eligible types of work. - Your application for reimbursement must be with the tax authorities at the latest within six months after the end of the 5-year/3-year period. (In the case of renovation, you also include the invoices, with rental you include the certificate of conformity and the lease).

7 However, you do not have to wait three or five years. As soon as the work is done or as soon as you have been able to rent out the donated property with a certificate of conformity, you can request the refund. Exemption for disabled persons For inheritance tax, there is an exemption for disabled children. This is now also applied if you donate to a disabled child/person. This is an allowance or threshold exemption, a reduction of the taxable base. The amount of the exemption depends on the degree of relationship between the donor and the disabled person. How does it work? - In the event of a donation to a disabled child/person in the direct line or between partners, the allowance is equal to the sum obtained by applying the following formula: ( 3000) x age coefficient (depending on the age of the recipient of the donation). - For donations between all other persons, the allowance is equal to the sum obtained as follows: ( 1000) x age coefficient. Appendix: new reduced Flemish basic rates (since 1 July 2015) TABLE I in the direct line and between partners portion of the donation A bracket in rate applicable to the corresponding portion in column A, in % total amount of the tax on the previous portions, in From up to and including , , ,000 9 (6 with renovation/rental) 4, , , (12 with renovation/rental) 13,500 (10,500) 450, (18 with renovation /rental) 49,500 (34,500)

8 TABLE II Rate between all other persons portion of the donation A bracket in rate applicable to the corresponding portion in column A, in % total amount of the tax on the previous portions, in From up to and including , (9 with renovation/rental) - 150, , (17 with renovation/rental) 15,000 (13,500) 250, , (24 with renovation/rental) 35,000 (30,000) 450, (31 with renovation/rental) 95,000 (78,500) ********************

9 Lloyd Georgelaan 11 I 1000 Brussels 3.The Brussels Region is moving into line on favourable rates for real-estate donations in the Flemish Region, while the Walloon Region is still lagging somewhat behind Marie-Pierre Géradin, Associated Notary, Brussels, Berquin Notaries March 2016 Adaptations have taken effect this year in the rates applied for real-estate donations in both the Brussels-Capital Region and the Walloon Region. The Flemish Region had already taken this step with its decree of 3 July 2015 which came into force on 1 July An order of 18 December 2015, which came into force on 1 January 2016, reduced the rate for real-estate donations in the Brussels-Capital Region. There are now only two categories of donees. In fact, from now on, there is just the direct line rate and the rate for other persons (without interim and specific rates for brothers, sisters, nephews and nieces). The real estate that is being donated does not have be located Brussels Region since the gift tax at the Brussels-Capital rate is due if, at the time of the donation, the donor has his domicile in the Brussels-Capital Region (or if, in the previous five years, the donor had his tax domicile in the Brussels-Capital Region for the longest time during this period). The location of the donated real estate has no impact unless the donation is made by an individual who is not an inhabitant of Belgium. The new provisions stipulate taxation at 3 % up to 150,000 in the direct line and (only) 10 % for the same bracket in other donee categories. For the rest:

10 Rate in direct line and between partners (spouses, co-habiting persons) From 0.01 to 150,000 3 % From 150, to 250,000 9 % From 250, to 450, % As of 450, % Rate for all other persons From 0.01 to 150, % From 150, to 250, % From 250, to 450, % As of 450, % Moreover, the Brussels-Capital Region has gone further in taking favourable measures by abolishing the progressivity reservation. In fact, Article 66bis of the Registration Duties Code stipulated that in the event of death within three years of a real-estate donation, the basis on which the donation duties has been levied was taken and added to the basis on which the succession duties were calculated. This meant that a real-estate donation was only advantageous provided that the donor survived for at least three years. Otherwise, the succession duties were calculated on a rate that was higher straight away, as it took account of the previous donation. For all donations made as of 1 January 2016, the donor survival period is not important. However, the progressivity reservation laid down in Article 137 of the Registration Duties Code remains applicable for successive real-estate donations. It is still necessary to wait three years between each real-estate donation to benefit from the lowest rates. Through its 2016 budget decree, which came into force on 1 January 2016, the Walloon Region also adapted its rate for real-estate donations (and donations of pers onal property with a suspensive condition fulfilled by the death of the donor). Unlike in the other two Regions, the donee categories remain applicable (with interim and specific rates for brothers, sisters, nephews and nieces). The real-estate property that is being donated does not have to be located in the Walloon Region since the gift tax in accordance with the Walloon rate is due if, at the time of the donation, the donor has his domicile in the Walloon Region (or if, in the five years prior to the donation, the donor had his tax domicile in the Walloon Region for the longest time during this period). As for the other Regions, the location of the property donated has no impact, unless the donation is made by an individual who is not an inhabitant of Belgium.

11 The new provisions stipulate taxation at 3 % up to 25,000 only in the direct line, but the rate does not exceed 50 % for donations between any persons. For the rest: Rate in direct line and between partners (spouses and co-habiting persons) From 0.01 to 25,000 3 % From 25, to 100,000 4 % From 100, to 175,000 9 % From 175, to 200, % From 200, to 400, % From 400, to 500, % As of 500, % Donation bracket Between brothers and sisters Between uncles or aunts and nephews or nieces From 0.01 to 50, % 10 % 20 % From 50, to 75, % 20 % 30 % From 75, to % 20 % 30 % From 150, to 175, % 30 % 40 % From 175, to 300, % 30 % 40 % From 300, to 350, % 40 % 50 % From 350, to 450, % 40 % 50 % As of 450, % 50 % 50 % Between all other persons As for the preferential progressive rates applicable to donations of the main residence, the provisions remain unchanged (Article 131ter of the Registration Duties Code). The system for passing on agricultural land in the Walloon Region has been adapted to include three additional conditions (Article 140bis of the Registration Duties Code). To be able to benefit from the rate, a certificate drawn up by the tax collector must always be provided by the donee. The new provisions/conditions are as follows: 1. any portion of agricultural activity exercised on the property donated must have been transferred prior to the deed of donation of the agricultural land 2. distinction based on the surface area of the land donated to determine the rate: - if the surface area is greater than 150 hectares: the rate is increased from 0 % to 3 % (for the entire donation, not just the part in excess of 150 hectares) - if the surface area is less than or equal to 150 hectares: the 0 % rate applies

12 3. farming period extended to 15 years for donations of land in excess of 150 hectares. ********************

13 Lloyd Georgelaan 11 I 1000 Brussels 4.Sales duty sometimes 15% in the Walloon Region Peter Van Melkebeke, associated notary, Berquin Notaries March 2016 Whereas in principle the sales duty on the purchase of real-estate property located in the Walloon Region amounts to 12.5%, a recent change means that 15% may now have to be paid. Specifically when the property in question is your third residence. This is the result of the Walloon Decree of 17 December 2015, Belgian official journal of 30 December Which transactions? The transactions affected concern sales, exchanges and other transfer agreements for valuable consideration of ownership or usufruct of real-estate property. Excluded: easements, right of use and right of occupation(!). However, bare ownership is included. The nature of the buyer has no impact whether natural persons or legal entities. Which real-estate property? The real estate must be located in the Walloon Region and be used entirely or partially as a residence. So it may be a house or an apartment. Properties such as a factory, ruin, house or apartment to be converted are not included. Minimum real housing stock When purchasing the residence or the apartment, the buyer will only pay 15% (instead of the usual 12.5%) if he is already the absolute owner or usufructuary of at least 33% of at least two other residences, wherever they may be in the world. The way in which the previous residences were acquired is not important (inheritance, donation, purchase, etc.). The housing stock is assessed at the time of the private purchase agreement.

14 For spouses: a common property as understood under the law governing matrimonial property rights is considered to be a property owned indivisibly in terms of registration duties, each party owning half. The condition in respect of the prior housing stock has to be considered in terms of each purchaser separately. A purchase made by two persons can therefore take place partly against payment of 15% and partly against payment of 12.5%. The term residence (immeuble d habitation) when assessing the housing stock has the same meaning as for the newly purchased residence. Housing bought as an investment with individual housing units is considered to be the appropriate number of housing units. However, those purchasing housing as an investment with individual housing units, without prior housing stock, will only pay 12.5%. Excluded from the composition of real-estate property stock Certain residences are not included when assessing the prior housing stock: residences that are the subject of expropriation residences purchased with the status of professional seller (Article 62 ff. Wal.W.Reg.) (only upon the purchase of a third residence) the residence or the two residences in which the rights are actually to be transferred (i.e. at least 33% in absolute ownership or usufruct) by means of an official deed to be drawn up within 12 months after the official deed of purchase of the third residence. Effective date The new regulation applies for agreements signed as of 1 January Private agreements signed before 1 January 2016 are subject to the former system, even if there is a suspensive condition that is fulfilled in Notarial deeds that are signed in implementation of such agreements are therefore also subject to the former system. ******************** Note: would you like more concrete information after reading this text? Unfortunately Berquin Notarissen cvba is unable to advise you by . If you wish, you can phone to make an appointment with one of our lawyers or notaries.