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Flanders reduces gift tax rate for real property
 
The decree "regulations for the execution of the budgetary adjustment in 2015” of the Flemish Parliament was adopted on 3 July 2015 and published in the Belgian State Gazette of 15 July 2015. One of the salient decisions is a substantial reduction of the gift tax rates for real property.

Inheritance tax and gift tax in Belgium

Belgian is a unique federal state with segregated political power on three different levels: the federal government, the communities and the regions.   Regions (the Flemish and the Walloon Region and the Region of Brussels-Capital) have authority in fields that can be broadly associated with their territory.  The communities, on the other hand, exercise their authority within linguistically determined geographical boundaries. 

Together with certain political authority, parts of the authority to levy taxes have been decentralised as well.  Inheritance tax and gift are a case in point. Initially it was a federal tax, but gradually, the authority to determine the inheritance tax rules has been transferred to the regions, so that inheritance tax and gift tax have become regional taxes. Initially, the Regions only had powers to determine the rates and the exemptions from inheritance tax and gift tax but they were not in charge of collecting the tax; that remained a power of the federal state.  The regions have used their legislative powers to adapt the rules in the existing tax codes.  The major difference is to be found in the tax rates.  Which rates apply depends on the Region where the deceased has been a tax resident for the major part of the last five years before his death

However, with the Sixth State Reform, the regions also received full powers not only to legislate in matters of inheritance tax and gift tax but also to collect, impose penalties and interest for late payment.  The Flemish Region has taken the opportunity to give the inheritance tax and the gift tax rules an entire overhaul relabeling the “succession duties” as “erfbelasting” (i.e. inheritance tax) and the “registration duties for donations” as “schenkbelasting“ (or gift tax). These tax rules were incorporated in the Flemish Tax Code in 2014.

As early as 2004, Flanders had replaced the high progressive gift tax rates in 2004 with two fixed rates: a rate of 3 percent (for spouses and partners, descendants and ascendants) and 7 percent for donations to all other beneficiaries.  Since then the number of donations increased exponentially. The Brussels and Walloon regions followed suit and introduced similar rates.

However, for real property the gift tax rates were still the old progressive tax rates.  They ranged between 3 percent (on the first bracket of € 12,500) to 30 percent on the bracket above € 500,000 for donations between parents and children. The rates for relatives in the second degree (siblings) and the third degree (e.g. uncle - nephew or aunt - niece) started at 20 or 25 percent with a maximum of 65 or 70 percent.  The highest rates applied to donations between individuals who are not related: 30 to 80 percent (over € 175,000).  Donations of real property from one generation to another were rare : it was often not economical to pay tax in advance rather than upon death.

To encourage donations, the decree holding provisions for the execution of the 2015 budgetary adjustment reduces the gift tax by lowering the gift tax rates and by reducing the for real estate has been simplified and lowered.

Gift tax for real property in Flanders

A donation of real property located in Belgium is Flemish gift tax if the a donor has been a tax resident in Flanders for the past five years (or if he has been resident for the larger part of the past five years), irrespective of where in Belgium the property is located. If the donor is not a Belgian resident, gift tax is due if the non-resident donor is donating real property that is located in the Flemish Region.

The gift tax is significantly reduced, there are now only two sets of rates, one for donations of real property between ascendants and descendants or between spouses, registered partners as well as partners who have been living together continuously for at least one year and who have effectively been running a joint household, and another set of rates for all other donations of real property.

New brackets and new tax rates for ascendants and descendants 

                                    spouses and partners:       all others,

0 to € 150,000                             3%                        10%
€ 150,000 to € 250,000                9%                        20%
€ 250,000 to € 450,000               18%                       30%
Over € 450 000                           27%                       40%

There is a preferential rate for long term rent or energy efficient renovation. However, that is given in the form of a reimbursement of the

There is an additional tax rate reduction in case the done undertakes to carry out energy efficient renovation (insulation of roofs or cavity walls, solar panels, heat pumps, ...) in the property. 

If the donee carries out energy efficient work to the property (e.g. insulates the roof or the attic, insurances cavity walls, installs solar collectors or heat pumps, ... ) for a value of at least €10,000 or if he rents out the property for at least nine years, he is entitled to the following lower rates. It is to be noted that these rates only apply to real property located in the Flemish Region.

                             Ascendants and descendants        all others,
                                  spouses and partners:

0 to € 150,000                           3%                             9%
€ 150,000 to € 250,000              6%                           17%
€ 250,000 to € 450,000              12%                         24%
Over € 450 000                          18%                         31%

The beneficiary of the donation pays the ordinary rates first and that he can claim back the difference afterwards.  If he carries out energy efficient works within a period of five years from the donation, he can claim back the difference.  In case he lets out the property, he can claim back the difference with a registered rental agreement for a period of nine years, and a certificate that the property is in conformity with the requirements of the Flemish Housing Code.

The decree also introduces a special abatement for donations to disabled donees of €3,000 for donations to ascendants and descendants, spouses and partners, and of €1,000 for all other disabled donees. The abatement is to be multiplied with a coefficient varying between 18 (for donees under 20) and 2 (for donees over 80).

The new reduced gift tax does not change the temporary scheme that provides special reduced rates for the donation of building land ; that scheme is in place until the end of 2019.

Donations to certain non-profit associations and private foundations are subject to a fixed rate of 5.5 percent.  This rate is also reduced to 3 percent (granted by way of reimbursement) for the donation of real property located in Flanders if the property is renovated or let out with a certificate of conformity.

The new rules and rates entered into force on 1 July 2015 and in the first month the notaries reported a surge of the donations of real property by 14 percent.

5 August 2015
Marc Quaghebeur
De Broeck Van Laere & Partners



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