Tax fiction thwarts reality…
In order to still be able to levy inheritance tax on the split purchase, the legislator has provided for a so-called ‘fiction clause’: the real estate is deemed to be part of the estate of the deceased parent/usufructuary for the full ownership and thus constitutes a taxable bequest to the children/bare owners. After all, the tax authorities suspect that the testator has secretly paid for the purchase of the usufruct and the bare ownership himself or herself in order to benefit the heir – because, in this way, the heir gets full ownership of a property without having to pay inheritance tax.
In Flanders, this fiction clause has its basis in art. 220.127.116.11.7 Flemish Tax Code (VCF). For Brussels and Wallonia, this is art. 9 of the Inheritance Tax Code (W.Succ.).
… but rebuttal remains possible
To escape the fiction clause and refute the legal presumption, the taxpayer can always try to prove that there was no so-called ‘covert advantage’ at the time of the purchase of the real estate. In other words: either there was no advantage, or the advantage took place openly (e.g., via a donation in advance).
In essence, proof to the contrary is provided if the bare owner can prove that he or she was sufficiently solvent to purchase the bare ownership. In practice, this means that the children/bare owners must be able to prove that they financed the bare ownership with their own resources, taking into account 3 elements:
- that they had sufficient resources of their own to purchase the bare ownership;
- that they actually paid the price for the bare ownership themselves;
- that the division into usufruct and bare ownership was done correctly.
How exactly can you provide proof to the contrary? To do this, you have to fall back on the administrative positions of the different tax administrations in Belgium. And that is the sticky point.
How do you provide proof to the contrary in Brussels and Wallonia?
In 2002, the federal tax administration first spoke out about how proof to the contrary in relation to a split purchase can be provided. A prior donation was sufficient to exclude the fiction provision, provided that the donation had been made before any purchase transaction – often in practice, the signing of the private sales agreement. But that high degree of legal certainty was undermined when the federal tax administration made a 180-degree turn in 2012 and labelled the split purchase as tax abuse.
What followed was a period of years of legal uncertainty with a host of different opinions. The key question is: where are we today?
The current position of the federal tax administration of 26 June 2020 follows indirectly from the ruling of the Council of State of 12 June 2018 (see below). For split purchases as from 1 August 2020, application of the fiction provision can be avoided if the bare owner, at the time of the split purchase, can demonstrate that he or she had sufficient resources of his or her own to purchase the bare ownership and that he or she actually paid the price him/herself. If the funds were donated to the bare owner, this donation must not be made by public instrument. It is sufficient to prove, where applicable, that the funds were donated (by public instrument or a bank gift) before the bare owner paid his or her share of the price (for real estate, this is the authentic deed of purchase).
Note: the federal tax administration uses the date of the private sales agreement (for real estate, that is the signing of the private sales agreement) as the point of reference at which the prior donation must have taken place, if any amount was already paid at that time, regardless of its nature (advance, guarantee, etc.). If no amount was paid beforehand, the authentic deed of purchase continues to serve as the point of reference.