New bill on Flemish inheritance tax prohibits the deduction of debt to the surviving spouse
On 14 July 2017, the Flemish government approved a bill that prohibits the deduction, in accordance with the marriage contract, of a debt to the surviving spouse in the inheritance tax return of the predeceased spouse.
The Flemish government is responsible for the levying of inheritance tax on the estates of residents of Flanders. In principle, the bill is not applicable to any estates held by residents of the other Belgian regions.
Marriage contracts with a settlement clause
In three judgments earlier this year, the Belgian Court of Cassation confirmed the right to deduct a debt to the surviving spouse in the inheritance tax return of the predeceased spouse, in compliance with a settlement clause in the marriage contract.
The settlement clause is a clause in the marriage contract between spouses married under the matrimonial property regime with a separation of assets (in Dutch, “huwelijksvermogenstelsel van scheiding van goederen”). The wealthier of the two spouses undertakes to transfer, upon their death, certain assets to the other spouse. Under current legislation, the debt to the surviving spouse is deductible in the inheritance tax return of the wealthier, predeceased spouse. However, the Flemish Tax Administration rejects the deduction. The Flemish government foresees an amendment to the Flemish Tax Code, which makes the deduction of the debt in the inheritance tax return impossible, even if the debt amounts to less than half of the assets that the wealthier, deceased spouse earned during the marriage.
Let’s say two people marry under the matrimonial property regime with jointly held acquisitions (in Dutch, “huwelijksvermogenstelsel van gemeenschap van aanwinsten”). (Acquisitions are the assets that have been earned during the marriage.) Let’s say the wealthier spouse has run a successful business, while the less wealthy one has no professional income. The wealthier spouse dies, leaving an estate of EUR 5,000. Under the matrimonial property regime, the surviving spouse has a claim of EUR 2,500 upon dissolution of the commonly held assets and does not need to pay inheritance tax on that part.
Let’s take a second example: two people marry under the matrimonial property regime with separation of assets. Upon the death of the wealthier spouse, the surviving spouse is entitled to half the assets earned by the deceased during the marriage, in accordance with the settlement clause in the marriage contract. In principle, under the amendment to the Flemish Tax Code, the surviving spouse must pay inheritance tax on the assets they receive through the settlement clause (EUR 2,500). The claim of the surviving spouse will not be deductible as a debt for inheritance-tax purposes.
Other specific clauses in favour of the surviving spouse in the marriage contract
Spouses married under the matrimonial property regime with commonly held assets can transfer all of those assets to the surviving spouse if that is specifically provided for in the marriage contract. The surviving spouse recognises an indebtedness to the children, corresponding to the value the surviving spouse received that is in excess of half the commonly held assets. The debt can be claimed only upon the death of the surviving spouse.
Upon the death of the first spouse, the children are taxed based on the value of the claim. The surviving spouse is not taxed. Upon the death of the surviving spouse, the debt to the children is deductible. Only upon the death of the first spouse inheritance tax is paid by the children. Under the amendment to the Flemish Tax Code, the debt of the surviving spouse will no longer be deductible in the inheritance return. The surviving spouse will be taxed on the assets that exceed half the commonly held assets in the inheritance tax return of the deceased spouse. Upon the death of the surviving spouse, no deduction will be accepted (once again). This means that inheritance tax will be due twice.
Entry into force
In principle, the bill will enter into force 10 days after publication in the Belgian Official Gazette, presumably in January 2018.
Check marriage contract and/or will
Spouses with a settlement clause in their marriage contract must have the contract reviewed. Spouses with a similar specific clause in their will in favour of the surviving spouse also need to rewrite their will.
If you have questions on how this new position could affect you and yours, please feel free to get in touch with one of our tax lawyers or your regular contact person at Loyens & Loeff.