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Investing in foreign real estate: think before you begin

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With the end of the fall vacations in sight, many say goodbye to a virtuous vacation. A vacation that is often spent abroad and sometimes prompts dreams of having one of their own locally.

Buying a house or apartment abroad, sounds interesting and fun, but pay attention to some points of interest before taking the plunge.


Modified personal income tax valuation

For many years, there was great controversy surrounding the declaration in the personal income tax of (non-)let foreign real estate. Unlike Belgian real estate, for its foreign counterparts, the actual rental (value) had to be declared. Although case law always ruled in favor of the taxpayer, the Belgian tax authorities occasionally tried to be difficult.

Since this year, however, the tax authorities have provided for the attribution of a KI to these assets in order to undo the unequal treatment of Belgian and foreign real estate. In many cases, however, this KI will still be significantly higher than a Belgian property of similar value.


Corporate tax benefit

When buying a property, the question is often asked which is more interesting from a tax point of view: buying as a private individual or with the company, so also for foreign real estate. Previously, this investment was often made through the company in order to be able to deduct the costs from Belgian profits. Today, with some specific exceptions, this is no longer possible.

From a purely tax point of view, purchasing through a company is no longer advantageous. Nevertheless, in practice, such investments are still often made through Belgian companies. Among other reasons because the financing is easier to structure or because of certain succession arrangements that have already been made.


Added value on sale

An often asked question is what happens when the second residence is sold and any capital gains realized. How much tax has to be paid on this in Belgium? The answer is simple: none. Capital gains realized on the sale of real estate are always taxable only in the country where the property is located.

Be careful in the situation where the property is in a Belgian company and the shares of the company are sold. In a purely Belgian context, this would not trigger capital gains tax on the Belgian real estate. In some cases, however, this may be reclassified abroad as a sale of the real estate itself rather than the shares.


Succession planning

When structuring the purchase of the second residence, the distribution of assets should also always be considered. It is important here to also take into account the tax rules applicable in the country of the property.

Likewise with the transfer following death. A purchase of bare ownership through the children and usufruct through the parents is a possible inheritance planning in Belgium to avoid inheritance tax. In Spain, for example, this principle does not apply and inheritance tax is still due on the value of the usufruct.


Mortgage loan

Those who wish to take out a loan for the purchase of the second residence should also keep a few things in mind. First, interest rates for loans have risen sharply over the past year. Obtaining a loan will therefore require an even stronger dossier in terms of repayment capacity. It should also be borne in mind that banks do not want to mortgage the foreign property. Consequently, other Belgian assets will have to be provided as collateral in order to claim financing.


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