Belgium levies inheritance tax on foreign assets
If a Belgian resident dies, in principle, Belgium levies inheritance tax on the worldwide estate. All properties and movable assets (situated either in Belgium or abroad) fall in the estate of the deceased Belgian resident and are subject to Belgian inheritance tax.
Belgium allows a credit for foreign inheritance tax levied on real properties
When a deceased Belgian resident leaves foreign real property, the property is often subject to inheritance tax in the jurisdiction where it is situated. To avoid double taxation, the Belgian legislation allows to credit the foreign inheritance tax to the Belgian inheritance tax. The Belgian inheritance tax can therefore be reduced with the foreign inheritance tax levied on the foreign property.
Example: A foreign property is part of the estate of a deceased Belgian resident. In principle, the Belgian inheritance tax due amounts to 100. In the jurisdiction where the property is situated, the inheritance tax levied amounts to 80. Belgium allows a credit for the foreign inheritance tax and will therefore only levy 20 inheritance tax. This means that the total inheritance tax due by the heirs amounts to 100: 80 abroad and 20 in Belgium.
The foreign inheritance tax can however only be credited to the Belgian inheritance tax that is levied on the foreign property.
Example: A foreign property is part of the estate of a deceased Belgian resident. In principle, the Belgian inheritance tax due amounts to 100. In the jurisdiction where the property is situated, the inheritance tax amounts to 120. Belgium allows for the foreign inheritance tax to be credited and will not levy any further inheritance ax. This means that the total inheritance due by the heirs amounts to 120: 120 abroad and 0 in Belgium.
By granting the tax credit, double taxation is avoided. The total inheritance tax burden on the foreign property will be equal to the highest applicable inheritance tax.
Belgium does not grant a credit for foreign inheritance tax on movable assets
Movable assets situated abroad can also be subject to inheritance tax in the jurisdiction where they are situated when the owner dies. The Belgian legislation does not allow a credit for foreign inheritance tax levied on movable assets.
Example: A securities account held at a Spanish bank is part of the estate of a deceased Belgian resident. In principle, the Belgian inheritance tax due amounts to 100. Spain levies an inheritance tax of 80. Belgium does not allow a tax credit for the Spanish inheritance tax. The total inheritance tax due by the heirs therefore amounts to 180: 80 in Spain and 100 in Belgium.
As no credit is allowed, a double inheritance tax is due by the heirs on the securities account.
Only 2 double inheritance tax treaties
Whether or not the foreign inheritance tax levied on movable assets situated abroad can be credited to the Belgian inheritance tax, has a significant impact on the estate of Belgian residents.
Belgium only concluded 2 treaties on the avoidance of double inheritance tax that entered into force, one with France and one with Sweden. In respect to inheritance taxes levied in all other jurisdictions, the national rules on the (non-)application of tax credits remain applicable.
Foreign estate taxes deductible as liability
The current Belgian legislation only allows to credit foreign inheritance taxes to Belgian inheritance taxes, to the extent they are levied on a foreign real property. No credit is allowed when the foreign inheritance tax is levied on movable assets situated abroad.
Inheritance taxes, i.e. taxes levied in the hands of the individual heirs on the share in the estate they receive, must however be distinguished from estate taxes. Such estate taxes are levied on the estate in its entirely and not in the hands of the heirs personally.
When the foreign tax concerns an estate tax and not an inheritance tax, in principle, Belgium allows for the Belgian taxable basis to be reduced with the foreign estate tax, as the estate tax is considered a liability of the estate.
Example: On death of a Belgian resident (UK non-domiciliary), the United Kingdom taxes the assets situated in the UK that are part of the estate. This tax qualifies as a tax levied on the estate itself and not as a tax levied in the hands of the heirs on the share they receive in the estate. This UK tax therefore concerns an estate tax that can be deducted from the Belgian taxable basis as a liability of the estate.
Belgian State condemned
In its judgement of 3 June, the Belgian Constitutional Court ruled that the Belgian inheritance tax legislation is discriminatory, to the extent it only allows a credit for foreign inheritance tax levied on foreign real property, but not for foreign inheritance tax levied on movable assets situated outside Belgium.
New legislation expected!
The judgement of 3 June relates to an estate of 2007. This estate was still subject to the old federal legislation (article 17 of the Code of Inheritance Taxes) that has been repealed and replaced by regional legislation in the meantime (article 18.104.22.168.4. of the Flemish Tax Code in respect to the Flemish Region).
In response to a question raised in Flemish parliament, the Flemish government indicated that the legislation will soon be adjusted in accordance with the judgement of the Constitutional Court.
Importance for international estates
For the international estate planning practice, the judgement of the Constitutional Court is an important development. Following this judgement, movable assets included in the international estate of a deceased Belgian resident will no longer be subject to a double taxation.
We now await the adjustment of the regional legislation. However, in our opinion, heirs confronted with a double inheritance tax on international estates can already apply the judgement.