Do you own property as an investment that you would like to pass on to your heirs or other people? There are several ways of arranging a succession that are both in line with the regulations and efficient. What are they? What are the tax impacts? Are there any pitfalls? The BuyerSide experts explain it all for you in this article.
1. Passing on property via an accretion clause
If you buy a property with your partner without being married or legally cohabiting, an accretion clause can be included in the deed of sale. If one of the two partners dies, this will enable the surviving partner to acquire full ownership or usufruct of the property. Thereby avoiding the need to pay estate duties, which are usually very high, as the tax authorities consider de facto cohabiting partners to be strangers.
What are the disadvantages of an accretion clause?
An accretion clause is not always the right solution, especially if there are children from a first union. In fact, if property is transferred in full ownership, the children do not inherit the bare ownership. This means that if the deceased partner had children, they would not have any right to the property. It is also worth noting that the partner who acquires full ownership will have to pay registration duties of 12.5% in Wallonia and Brussels or of 10% in Flanders, unless the transaction is reclassified as a gift.
2. Joint ownership with the children to take care of a succession
To avoid your children having to pay estate duties, joint ownership allows you to give them part of your property during your lifetime. By becoming joint owners of the property, they will only have to pay registration duties of 1% for a shared property located in the Walloon Region and in Brussels or 2.5% in Flanders.
What are the disadvantage of joint ownership with the children?
The problem with this method is that by becoming joint owners, the parents can no longer do as they wish with their property. They have to obtain the consent of their children if they wish to have work done or take any other action. Moreover, the children are considered to be joint co-owners. This means that if these children die, the property passes to the grandchildren. As these grandchildren are often minors, they have to be represented by the surviving parent. In most cases, this situation causes conflict. What is more, by becoming joint owners of a property, the children may lose tax benefits when acquiring their own property.
3. Passing on property by giving a child full ownership
Few parents are aware of this, but in Belgium it is perfectly possible and legal to buy a property in the name of their child (after having donated money to them). The main objective here is to avoid the children having to pay estate duties when the property comes to them.
What are the disadvantages of full ownership for the child?
As with joint ownership, by putting your property in the name of your child, you have no rights to your home. When the child is a minor, all decisions require the prior consent of the justice of the peace. In addition, if you subsequently have other children, re-establishing a balance in your estate can be complicated.
4. Passing on a property by means of a split purchase
As the name indicates, a split purchase consists of buying the usufruct of a property as parents while the children buy the bare ownership. This is usually possible thanks to a gift of money made by the parents. The children then acquire full ownership when the last parent dies. Without having to pay costs.
What are the disadvantages of a split purchase?
For this method to be applicable, you have to be able to prove that the children had indeed bought their share themselves. In other words, you have to prove that the money was gifted before the purchase was made. And a reasonable period of time has to elapse between the two transactions. Even in the case of a split purchase, the gift can be made by private agreement (no registration duties), or it can be registered (with the payment of 3% registration duties). The risk with an unregistered gift is that if the donor dies within three years, the assets they have donated will be reintegrated into their estate and estate duties (which are far higher than gift tax) will have to be paid. In the direct line, the progressive rates per tranche can be as much as 27% (Flanders) or 30% (Brussels and Wallonia). As with joint ownership, the parents lose the freedom to decide because the children are, in part, owners. The children may also lose tax benefits on the purchase of a home.
5. Buying as a property management company to pass on real estate
In Belgium, buying a property as a company (rather than as a natural person) makes it possible to reduce the costs of a gift. In practical terms, this is because a gift of property is subject to registration duties on gifts. In addition to being progressive, depending on the value of the property, the rates of these registration duties on gifts vary depending on the degree of kinship and the Region of residence. They range from 27% to 30% for the children and a spouse/cohabiting party and can rise to 50% in other cases. A gift made through a company is considered to be a gift of movable property. If it is not registered, no registration duties are collected.
What are the disadvantages of purchasing as a property management company?
Owning a company entails consequences in terms of taxation and rental revenue which will be taxable in the company and then a second time if you wish to draw income from this as a natural person (dividend, remuneration, etc.), so you need to be aware of this.