You and your partner are retired and during a trip, you are enchanted by the charm of an idyllic fishing village. On impulse, you decide to buy a house there. ‘Why not?’, you may think, 'For the children who lead busy family and work lives in Belgium too, it is nice to have a place abroad where they can escape from the daily hustle and bustle for a while.’
Before you realise it, you are spending large parts of the year in your holiday home. Until an acquaintance points out to you that this could have tax implications for your estate. ‘Why’, you think, ‘surely we have Belgian nationality and are still officially domiciled in Belgium?’.
Estates with international connections
Your acquaintance is right. If you live partly in Belgium and partly abroad, handling your estate can become complex. Both inheritance law and inheritance tax may then fall under different jurisdictions.
What is the importance of inheritance law?
Among other things, inheritance law governs how your estate is distributed among your heirs. Under Belgian inheritance law, basically the surviving spouse has usufruct and the children have bare ownership of the estate. But this is not the case in every country. The "reserve", the minimum inheritance to which each child is entitled, also varies from country to country. Some countries do not even have a reserve.
Which inheritance law applies?
As a rule, the last usual residence of the deceased determines which national inheritance law applies. This is a question of fact. Your official place of residence (based on your national register) and nationality are an important element here, but the decisive factor is the actual assessment of the place that was the centre of life (e.g. your family's residence, property, social ties and so on).
You can avoid such legal uncertainty by stating in your will that you declare that the inheritance law of one particular country applies to your estate.
Which country is allowed to tax?
In tax matters, you do not have that choice. Each country will have its own criteria for determining whether you are a tax resident there. If you are a tax resident of a particular country, that country will usually want to levy inheritance tax on your worldwide assets. Since countries interpret tax residency differently, there is a risk that both countries will consider themselves entitled to tax your estate (or gift).
In this international context, Belgium has entered into many bilateral treaties in the field of income tax, establishing rules on which country can tax the income. However, with regard to inheritance (and gift) tax, Belgium has hardly concluded any bilateral treaties at all, so there is a potential risk of double taxation.
What if your children live abroad?
In Belgium, as in most countries, we look to the tax residence of the deceased or donor as the starting point for the application of inheritance or gift tax. In other words, if the deceased or the donor had his/her tax residence in Belgium, one of our Regions will be able to tax the estate or donation. In the case of a non-resident, only property located in Belgium will be taxed.
Note that some countries tax the heirs of an international estate and the receiver of the international gift. So movable assets gifted by a Belgian to his child living in, say, Germany or Spain, will be taxable there, even if the gift was also taxed in Belgium.
And what about other taxes?
As regards income taxes, such as the taxation of pensions or salaries, Belgium has concluded treaties with many countries that determine which country is allowed to tax. Our services will be happy to help you apply these rules correctly.
Conclusion
If you live in a country other than Belgium for large parts of the year, it is best to have the situation examined to check that this does not trigger unforeseen tax effects. Seeking advice before making gifts to a child abroad is also essential. Grant Thornton has offices in more than 150 countries and therefore has the international expertise to guide you through this.
