At the end of 2021, the Walloon government approved a new decree aimed at creating a more "fair" tax. The decree has since come into force on January 1, 2022 and brings some important changes to Walloon gift and inheritance taxes. We would like to give you an overview of the exact changes in case of a donation.
Donation: Extension of suspect period from 3 to 5 years
Today there are 2 possibilities to donate (certain) movable assets:
- Either you choose to register the donation
- Either you choose to make the donation "privately" (e.g., transfer a sum of money)
If you decide to register the gift, gift taxes will be due on the amount of the gift, which in the Walloon Region amount to (i) 3.3% for gifts in direct line (i.e. gifts between (grand)children, (grand)parents) and between partners (married or legal cohabitants), and (ii) 5.5% between all others.
If you do not register the gift, then no gift tax will be due provided that the donor remains alive for a well-defined period of time (the so-called "suspicious period") after the gift. Since January 1, 2022, the Walloon Government has extended this suspect period from three years to five years.
If the donor dies within the suspect period after the gift, the gift is not subject to the interesting gift tax rates mentioned earlier, but the higher inheritance tax rates apply. If the donor does not die within this suspicious period, the gift is completely tax-free. (For more info on the hypothesis that the health of the donor deteriorates during this risk period, see our previously published articlel.)
In concrete terms, this means that, for unregistered donations made after January 1, 2022, the donor must still live for five years if you want to avoid inheritance tax. Donations made prior to the entry into force of the Decree still benefit from the three-year period. Because a longer period has to be bridged, the Walloon government would like to encourage more taxpayers to opt for the more advantageous gift tax.
Life insurance gift: henceforth taxed on capital gain
The decree also envisages the technique commonly used in practice whereby a life insurance policy is gifted to the beneficiary during the policyholder's lifetime. As a result, the latter is not liable for inheritance tax on the benefit received when the donor policyholder dies.
By amending the law, the Walloon decree introduces a similar system as in the Flemish Region. Under this system, the payment of the insurance policy upon the death of the initial policyholder is still subject to inheritance tax. This will amount to the difference between (i) the amount paid out and (ii) the value that served as the basis for the gift tax (i.e. the surrender value at the time of the gift).
Donation with effect on date of death: Inheritance tax due
Also, since January 1, 2022, the possibility of making a gift under the special condition that it will not take effect until the death of the donor is always subject to inheritance tax, where previously it was subject to the (lower) rates of gift tax in certain situations.
Introduction of general anti-abuse provision
With regard to the tax procedure, the Walloon government is introducing a general anti-abuse provision to prevent cases of deliberate non-compliance with tax laws. Furthermore, the extraordinary periods for investigation and taxation were extended from five to ten years when the tax administration discovered fraudulent intent or malicious intent.
The introduction of this decree makes it clear once again that the tax regimes in our country can differ greatly from one region to the next. The above regulations apply in the Walloon Region and therefore differ from those in the Flemish Region and the Brussels Capital Region.
Relocation plans to another region? Don't lose sight of its tax impact!
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Do you still wish to have a conversation about what this decree means to you? Then schedule an appointment with a Titeca Pro Expert here!