The Flemish Tax Administration's latest and enlarged positions on split purchases have no legal basis
Twice, the Flemish Tax Administration has recently expanded its position on split purchases to include the split registration of securities and investments. When securities or investments are purchased by the parents, who buy the usufruct and by the children, who buy the bare property, the funds needed to complete the purchase of bare ownership cannot have been previously donated for that purpose. If they have, gift tax must be paid in order to avoid inheritance tax on the value of the full ownership of those securities or investments.
Details of the Tax Administration’s position
The Tax Administration’s position concerns the following scenario:
- A gift of funds is made.
- The beneficiaries make a split purchase together with the donors. The donors buy the usufruct; the beneficiaries, the bare ownership.
The Flemish Tax Administration holds that, in such a case, the assets purchased in this way are deemed to be part of the donor’s estate in full ownership. Inheritance tax will thus be due on the value of the full ownership of the assets thus purchased.
No inheritance tax is payable, however, if evidence of either of the following is presented:
- The funds for the donation were not earmarked for the purchase of the bare ownership, and the donation itself was not made to finance the purchase of the bare ownership; OR
- The donation was subject to gift tax before the purchase.
Recent expansions of the Tax Administration’s position
This position has recently been amplified twice by the issuance of two statements to the effect that the above stipulations also apply to a split registration of securities and investments, and to a split registration of shares of a Belgian limited partnership (known as “maatschap” or “société de droit commun”) that holds securities and investments. The above-mentioned evidence may also be presented to avoid the liability of inheritance tax.
The first statement, that the above stipulations apply to a split registration of securities and investments, is applied on gifts involving the reservation of usufruct and made as from 1 June 2016. The second statement, that the above stipulations also apply to a split registration of shares of Belgian limited partnerships that hold securities and investments, is to be taken into account for gifts involving the reservation of usufruct that are made as from 1 June 2017.
These rules are applicable if on the day they died the donor was a resident for tax purposes of the Flemish Region but not if they were a resident of the Brussels or the Walloon Region.
Lack of legal basis
One noteworthy response to these enlarged standpoints was a statement in the press that all donations of movable property involving the reservation of usufruct will henceforth be subject to inheritance tax on the donor’s estate if no gift tax has been paid.
In our view these comments in the press are irreconcilable with the Flemish Tax Administration’s positions on split purchases, and thus have no legal basis. Both positions are also without legal basis !
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. We’re always happy to hear from you.