Association Afschrift on the logistics of Belgian inheritance tax

World Finance speaks to Jonathan Chazkal, Partner at Association Afschrift, to discuss Belgium’s taxation landscape

October 20, 2014

Inheritance tax continues to be a divisive issue among Belgians. One company helping to shed a light on the logistics of taxation in the country is Association Afschrift. World Finance speaks to its representative, partner Jonathan Chazkal, to discuss how the industry is evolving.

World Finance: What are the principle as well as the applicable rates relating to inheritances?

Jonathan Chazkal: The general rule in Belgium is that you pay taxes if the deceased passes away in Belgium, if his last residence was Belgium. If that’s the case, all the heirs of that deceased person will have to pay inheritance tax on all the goods that were belonging to the deceased person on the day of his death. The applicable rates can go up to 65 percent. For example, if it’s in direct line from parents to their children, the applicable rates go up to 27 percent, but for a brother or sister it can up to 65 percent. So it’s very high rates, so it is sometimes important to try and avoid them.

So it’s very high rates, so it is sometimes important to try and avoid them

World Finance: Now who’s ineligible for these higher rates?

Jonathan Chazkal: If, on the day of death, the goods do not belong anymore to the deceased persons, the heirs will not have to pay inheritance tax on these goods. So for example, there would be donations given during the lifetime of a person, and if a donation is made, then on the day of death no inheritance tax will be due on those goods. However, if the deceased person passes away within a delay of three years of the moment of that donation, then the heirs will have to pay inheritance tax. If you want to avoid that inheritance tax, then what the deceased person can do during his lifetime is, when he gives out the goods to for example his children, he could register that donation for a rate that’s three percent. If it’s a donations to someone else than in the direct line, the rates are seven percent. So in any event, if you would then pay three percent, then the heirs will not be eligible anymore for inheritance tax.

World Finance: Sitting across the table from one of your clients, how would you suggest that they devise a strong inheritance plan?

Jonathan Chazkal: The idea is to not be owning the goods the day of death. So either do donations during the lifetime of a person, or you can for example, regarding real estate, you should know that donation tax to pay it with real estate are the same as the inheritance tax. So a solution would be, for example, to bring in the real estate into a company in order to donate the shares, which then would be much cheaper than donating the real estate itself. Finally, a system that is being put forward in Belgium lately is the system of trusts that the UK, for example, knows as a structure. In Belgium, the Belgian law does not know the trust structure, but the international law does know it. And so, if and under very strict conditions, the trust is discretionary, is irrevocable, then it would be possible for the beneficiaries of such a trust not to be eligible for inheritance tax if the grantor passed away.

World Finance: Fascinating. Jonathan, thank you so much.