For wealthy Belgian residents, inheritance planning is very complex but extremely important. Belgium is a country of two extremes when it comes to inheritance and gift tax.
On one hand, inheritance tax rates are very high. In certain cases, this tax between non-affiliated persons can amount to 80% of the value of the inheritance. Even in the direct line, high rates apply, which for relatively small inherited amounts already range from 27% to 30%, depending on the Belgian Region where the testator resides. The same issue exists in Luxembourg, especially if the resident has no spouse (or legal partner) or heirs in the direct line.
On the other hand, both countries have flexible legislation regarding gifts. Gifts of bankable assets must generally be done by a registered notary deed, which implies that, regardless of the amount of the gift, flat gift taxes will have to be paid. In Belgium, these taxes range from 3% (in the Flemish and Brussels Region) or 3.3% (in the Walloon Region) in the direct line, to 7% (in the Flemish and Brussels Region) or 7.7% (in the Walloon Region) in the non-direct line. In Luxembourg, the rates range from 1.8% to 14.4%, depending on the degree of kinship between the giver and the donee.
Indirect Gifts
A second option for gifting bankable assets is to make an indirect gift, typically done by a bank transfer accompanied by a private donation document, which does not need to be registered. This indirect gift may thus be subject to 0% gift taxes, provided the donor survives the gift for at least 5 years in Belgium and 1 year in Luxembourg.
Insurance Gifts
When assets are already invested in an insurance contract, a third option is to organise an insurance gift by assigning the rights of the insurance contract, which must be formalised in an addendum to the contract.
Conditions Attached to Donations
Belgian and Luxembourg civil law allows donors to attach conditions to the donation, enabling them to exercise a certain degree of control over the donated assets. A key question is how the donor can ensure the donee adheres to these conditions. In this context, the insurance contract can play a crucial role, especially through its beneficiary clause, which can be made irrevocable. This is known as the ‘accepting’ beneficiary clause in Belgian and Luxembourg law. Once the beneficiary accepts this clause, the policyholder cannot exercise their rights without the beneficiary’s agreement.
Adviser’s Role
As an adviser working with Belgian or Luxembourg resident clients, it is essential to prioritise inheritance planning when discussing the structure of the clients’ investment assets. Customised planning solutions are available, and insurance contracts can play a vital role in this process.
Given the complexity of this matter, it is highly recommended to consult a Belgian or Luxembourg tax/legal specialist who can summarise the various options available in light of your client’s specific needs.