Inheritance Law & Taxes in Belgium

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Inheritance Law & Taxes in Belgium

In Belgium an estate passes to a deceased person's heirs in two ways:

1. Following strict laws on inheritance that benefit family members (descendants, parents and brother and sisters) and the spouse in a fixed order of succession
2. Following a person's own wishes on the disposal of their property, as expressed in their will

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Inheritance Law in Belgium

Belgian inheritance and inheritance tax rules depend on where the person lives and what kind of property they own.

• For individuals domiciled in Belgium, the rules apply to the entire estate (with the exception of real-estate property outside Belgium)
• For individuals living and domiciled outside Belgium, they apply to their real-estate property in Belgium

Domicile

Under Belgian law, domicile is the place where a person has - and has expressed their intention to have - their principal residence. It is the place where the centre of their family and economic interests lies, and where they are normally to be found. Belgium does not have a notion of domicile of origin.

The Belgian inheritance rules (and in particular the forced heirship rules) apply to the estate of anyone who is domiciled in Belgium at the time of death, as well as to the Belgian real estate of individuals who were not domiciled in Belgium.

Diplomats are not considered to have a domicile in Belgium and the inheritance rules apply only to any real estate owned in Belgium.

Officials of international organisations, however, have their domicile in Belgium, and are subject to the inheritance rules, even if they are not considered to have their fiscal domicile in Belgium for tax purposes.

Foreigners or Belgians that have moved out of Belgium are only subject to Belgian inheritance law for their immovable property in Belgium. All other property is governed by the laws of their country of domicile.

If there is no will

If a person dies without leaving a will, the Belgian inheritance rules decide who inherits the estate. In principle, the transfer is automatic, and the heirs do not need a court order to possess their inheritance.

Belgian inheritance law recognises heirs on the basis of different groups of people, ranked in descending order. The next group only inherits if there is nobody left in the previous group. All heirs in the same group inherit equal shares. The groups are:

1. The children and grandchildren
2. The parents and their relatives
3. The brothers and sisters and their relatives
4. If there are none of these, the Belgian State

A surviving spouse is an heir as well, but the extent of their inheritance rights depends on the situation:

• If the deceased has one or more children, the spouse is entitled to a life interest in the estate
• If there are no children but there are other legally recognised heirs, the surviving spouse is entitled to the entire matrimonial property, as well as to a life interest in the private property of the deceased (for the distinction see below)
• If there are no other heirs at all (that is, no children, grandchildren, parents, brothers and sisters nieces or nephews), the spouse will inherit the entire estate

The life interest (or usufruct) is the right to hold the assets of the estate and to collect and use the dividends, interest, rent, etc. It does not give a right to sell the assets of the estate. Both the heirs and the spouse have the right to ask that the life interest is converted into full ownership of some of the assets, but the spouse may refuse this conversion in respect of the house.

Matrimonial property is everything a couple acquires after their marriage. They own and manage this jointly. The possessions they had before their marriage, as well as anything they inherit from their family, remain their own private property. They can change these rules by signing a marriage contract before a notary so that they either own everything jointly or own everything separately.

When one spouse dies, half of everything owned by way of matrimonial property remains the property of the surviving spouse and is not part of the deceased person's estate. The other half of matrimonial property goes to the estate.

Other legal systems do not have the concept of joint matrimonial property. In international situations, couples have to find out which country's law governs the ownership situation between husband and wife. Generally speaking in Belgium, it is the law of the country where they had their first residence or domicile as a married couple, or the couple's joint national law.

If there is a will

Belgian law has a system of forced heirship that protects certain heirs so that they cannot be excluded from inheriting part of a person's estate. These set aside a part of the estate defined by law (the "reserve") for protected heirs, even if the person makes a will. Protected heirs are certain family members and the spouse. Therefore, before a will is executed the following rules are put into effect:

• If there is one child, he or she inherits at least half of the assets, two thirds are reserved if there are two children, and three quarters if there are three or more children
• The surviving spouse has a life interest in one half of the assets of the deceased, in particular in the family home
• If there are no children, the parents or grandparents are entitled to one quarter of the assets for the mother's side and one quarter for the father's side

A will may only dispose of the assets that remain after these rules are applied. If there are no protected heirs then a will may dispose of all of a person's property.

If a will leaves more to certain beneficiaries than is allowed under the heirship rules, the protected heirs can have the legacy reduced to the part of the estate the testator could dispose of without infringing their reserve. A protected heir can also ask the court to oblige beneficiaries of lifetime donations to return the part of the donation that has infringed their reserved right.

The estate

The estate is made up of all the assets and all the debts of the deceased person.

The assets are:

• The deceased person's share of matrimonial property
• All private property
• All income to which they was entitled up to the date of death
• All debts owed to them

The debts are:

• All private debts
• Half of any debts of the matrimonial property if applicable
• Funeral and other final expenses (such as hospital fees)
• Legal fees for managing the succession
• Any legacies to be delivered

If there are more debts than assets, the heirs can reject the inheritance.

Acceptance or rejection of the inheritance

Any heir, however they inherit, may:

• Accept all the inheritance, in which case their estate and all their share of the deceased person's assets and debts become one
• Accept the inheritance under condition of inventory (beneficium inventarii) which keeps the estate of the deceased separate from that of the heir. The heir will then only pay debts up to the total value of the inherited assets
• Reject the inheritance, in which case the heir will inherit neither the assets, nor the debts of the deceased. The inheritance then goes to the other heirs

If an heir accepts an inheritance under condition of inventory or rejects it, he or she must make a declaration to the clerk of the court of first instance in the place where succession is being settled.

An heir who accepts an inheritance under the condition of inventory can change their mind and accept the inheritance outright. However, an heir cannot undo rejection of the inheritance, even if he did not understand the consequences of rejecting it. For this reason it is important to obtain legal advice before deciding whether to accept or reject an inheritance.

These decisions are subject to time limits:

• Three months to have the inventory drawn up
• Forty days to decide whether to accept or reject the estate

Trusts

Belgian law does not have the concept of a trust, although a trust in Belgium is recognised in the Belgian international private law code.

The forced heirship rules could limit the extent of the estate that a person could transfer to a trustee. If the trust is set up by will, the trustee must ask for a court order to have the protected heirs hand over the assets to him. The courts have the right to limit this claim.

If the individual had set up the trust in a trust deed before death, the protected heirs can ask the court to decide whether the amount of the assets transferred to the trustee breaches the forced heirship rules. If the deceased has given away more than is allowed under the rules, the court can order that part of the trust assets be returned to the estate.

However, in practice, if the protected heirs do not invoke the forced heirship rules, the Belgian courts may not limit the trust.

Inheritance Tax

Belgian inheritance tax rules follow the inheritance rules. Inheritance tax is due on the value of the entire estate of a deceased person who was domiciled in Belgium. If the deceased was not domiciled in Belgium at the time of his death, inheritance tax still applies, but only to the real estate property the person owned in Belgium. The criterion of domicile is the same as for the application of the Belgian inheritance rules.

However, officials of the European Communities, the European Investment Bank, NATO, the Western European Union, etc. who live in Belgium to carry out their duties are exempt from Belgian inheritance tax as they are considered to die while on duty.

The value of the estate

Inheritance tax is levied on the net value of the estate of the deceased. Each of the heirs pays tax for his or her share.

There are some (anti-avoidance) rules that increase the value of the estate:

• Certain assets and rights, which are a consequence of the death of the deceased, must be included in the value of the estate, and the beneficiary is taxed on these
• Gifts in the marriage contract that grant the surviving spouse any rights to the matrimonial property are liable to inheritance tax for any value over half of the joint matrimonial property
• Lifetime gifts made less than three years before the time of death are added to the value of the estate and are subject to inheritance tax, unless they have already been subject to gift tax
• Any rights granted to a third party under a life insurance contract, except for statutory insurance schemes or group insurance schemes are taxable
• Any scheme under which a third party had full property rights on an asset, but in which the deceased had a life interest are considered to be a gift in disguise, and are added to the value of the estate, unless the beneficiary proves that it was not a disguised gift

Rates of inheritance tax

Within Belgium, the inheritance tax is paid to the regions - Brussels, Flanders and Wallonia. The regions set their own rates and the rates that apply depend on the region where the deceased was a tax resident for most of the last five years before death. Different rates apply depending on the heir's relationship with the deceased, such as relative, spouse or other.

Information on current inheritance tax rates for the different regions can be found on the following websites:

• Brussels (in Dutch and French)
• Flanders
• Wallonia

Transfers of family businesses and companies

These follow different rules, depending on the region where the deceased person was domiciled. Points to note are:

• In Flanders, the shares of a company or family business (or the assets of such a family business) located in the European Union may be exempt from Flemish inheritance tax if:
• the deceased held at least 50% of the share
• if the company employed at least five employees in Flanders during the last three years and if this employment is maintained for at least three years.
• Brussels has a flat inheritance tax rate of 3% on any transfers of the assets of a family business or the shares of a family company, if the company meets certain conditions of employment, investment and minimum share­holding.
• Wallonia has 0% and 3% inheritance tax rates for the transfer of a family business.

Double taxation

Because Belgian inheritance law applies to all the assets of a deceased person domiciled in Belgium, double taxation can be an issue. As a rule Belgium does not grant any relief for double taxation, except for inheritance tax paid abroad for overseas real estate property. This inheritance tax can be offset against the inheritance tax due in Belgium. Any other capital taxes paid abroad can only be offset against the net value of the assets as a liability of the estate.

Belgium has signed double taxation treaties relating to inheritance tax with France and Sweden. Other double taxation treaties that Belgium has signed with most European countries relate only to income tax and not inheritance tax.

Inheritance tax return

When a person dies in Belgium, all heirs must file an inheritance tax return (aangifte van nalatenschap/déclaration de succession) which gives an account of all details to do with the succession. The heirs may make the declaration themselves but, as it is often complex, they can ask a specialist such as a notary to help. They may each make individual declarations or make one joint declaration.

They should make the declaration at the relevant registry office (registratiekantoor/bureau de l'enregistrement) at the municipality in which the person lived or, if he lived outside Belgium, where his Belgian real estate was.

• More information can be found on the Belgian Federal Portal (in French or Dutch)

An heir who has rejected the estate has no obligation to file an inheritance tax return but has to make a formal request to the relevant registry office to not make the declaration. In effect this is still an inheritance tax return.

The time limits for the declaration of inheritance are:

• If the person died in Belgium - five months from the date of death
• If the person died in another country in Europe - six months from the date of death
• If the person died outside Europe - seven months from the date of death

An extension is possible in certain circumstances. Once the time limit has passed, the heirs cannot change the valuation of the assets or debts of the estate, except in legally defined circumstances. Within the time limit, a supplementary declaration is allowed, for property not mentioned in the main declaration.

Further Information

• The Belgian Federal Public Service
• The Royal Federation of Belgian Notaries (in Dutch & French)
• Beldonor.be - information on donating organs (in Dutch, French & German)
• Brussels Official Site (in Dutch & French)
• Flanders (in Dutch)
• Wallonia Tax Portal (in French)
• Taxation.be - taxation information site

Prepared by Marc Quaghebeur, International Tax Lawyer, Vandendijk & Partners Avocats/Advocaten,
Rue Edith Cavell 66, 1180 Brussels
Tel: 02 343 33 45, Fax: 02 343 41 45, www.vandendijk-taxlaw.be