Belgium: split purchase usufruct/bare ownership under fire after 1 September 2013

Tax alert

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Belgian Inheritance Tax and split purchase of property usufruct/bare ownership: all transactions set up after 1 September 2013 will come under fire of the tax authorities

As mentioned in our tax alert on the new adapted circular letter on the anti-abuse provision for registration duties and inheritance taxes from 10 April 2013, the split purchase of property preceded by the donation of cash by the buyer of the usufruct to the buyer of the bare property has been removed from the black list of transactions that are likely to constitute abuse of tax law.

In our previous tax alert, we already informed you of the fact that the removal of the transaction from the black list did not necessarily mean that the transaction was now accepted by the tax authorities.

On 19 April 2013, the administration already published a new decision (Decision of 19 April 2003 – bl.nr. EE/98.937) in which they inform that a split purchase usufruct/bare ownership preceded by a donation of money by the buyer of the usufruct to the buyer of the bare ownership could fall under the application of article 9 Inheritance Tax Code (IHTC) at the moment the usufructuary deceases (click here for the full text of the decision in Dutch/in French).

According to article 9 IHTC, inheritance tax is due on the full property of all assets bought by the deceased for the usufruct and by a third party for the bare ownership, when it cannot be demonstrated (among other things) that the acquisition of the bare ownership has effectively been financed with bare owner’s own funds. Up to now, the tax authorities, followed by the Courts of Law, considered that article 9 IHTC was not applicable when the bare owner could demonstrate that he already owned the funds used for the financing of his/her bare ownership prior to the split purchase, even when the funds used by the bare owner had been received by donation from the usufructuary.

On 19 April 2013, the tax authorities have decided that the financing of the bare ownership with bare owner’s own funds will not be sufficiently demonstrated anymore if it appears that the bare owner has used funds received by donation from the usufructuary prior to the decease. The tax authorities, considering that the situation must now be reconsidered based on the initial aim of the legislator, justify their new standpoint with a new interpretation of the initial preparatory works of the law having introduced the disposition currently known as article 9 IHTC, in 1919. According to the tax authorities, the financing of his/her bare ownership by the bare owner with funds received from the usufructuary prior to the split purchase is not in line with the initial aim of the legislator. As a result, inheritance tax must be levied on the full property of the assets at the time of decease of the usufructuary.

The tax authorities' new standpoint will be applied to all transactions set up after 1 September 2013. 

For all split purchases realized up to 1 September 2013, the tax authorities will still accept the use by the bare owner of funds received by donation from the usufructuary prior to the split purchase for the financing of the bare ownership.

Please, note that we do not agree with the interpretation given by the tax authorities of the preparatory works having led to the current article 9 IHTC. For more information, please contact the members of the EY Personal Tax Services department