In October we informed you that the duo-legacy can no longer be used to obtain a tax saving. Somewhat as compensation, the Flemish government has created the new regime of "the legacy of friends".
1. Friends legacy
When you leave something by will to a friend or distant relative (read: other than (grand)child, partner, or parent), they pay a hefty inheritance tax on it which - depending on the size of the bequest - fluctuates between 25% and 55%. The new regime of friends' legacies introduces a reduction in inheritance tax for distant relatives or friends, which means that an amount of up to EUR 15,000 can be bequeathed at a lower rate of 3%. This corresponds to the rate paid by children and partners on their first bracket. As a result, your friend will pay up to €3,300 less in inheritance tax.
So how do you proceed practically to set up such friend inheritance? The friends' inheritance must be explicitly included in your will, clearly indicating which persons may request the application of the tax reduction. This can be anyone, obviously excluding descendants and partners.
Since the regulation will take effect for all inheritances that fall vacant (and therefore for all deaths) as of 1 July 2021, you can already amend your will if you wish. The original requirement of a notarial will has been abolished. You can therefore include the friends' inheritance regardless of the form of the will (individual, notarized or international).
3. Overall picture
Please note that if you bequeath more than 15,000 euros to your friend, he will pay the ordinary rates (25% - 55%) on the surplus above 15,000 euros. Also, if several friends are bequeathed, the reduction of 3,300 euros will be applied. pro rata will be applied and thus in proportion to the amount they each receive. By limiting the amount to a maximum of 15,000 euros, the high rates of 25% to 55% will thus never really be far away.
Therefore, although the introduction of the friends' inheritance has a noble intent, it offers little relief to people with large assets. In such situations, it may be more advantageous to make a donation. A gift to a friend or distant relative of funds held in a bank account can be made either by means of a bank donation, in which case no gift or inheritance tax is paid provided the donor remains alive for at least three years, or by means of a registered donation, in which case a flat rate of 7% gift tax applies. This 7% applies regardless of the amount of the gift, where the reduction of the friends' inheritance is limited to EUR 15,000.
Before including the friends' inheritance in your will, it is therefore advisable to keep the big picture in mind, whereby a donation of movable property remains a very interesting option for those without heirs in the direct line or partner.
If you have any questions, would like additional clarification or guidance on the modification/formatting of your will, please do not hesitate to contact us at email@example.com.