On July 7, 2020, the federal Administration of Taxes was obliged (once again) to reconsider its position regarding the so-called “split purchases” in the Walloon and Brussels Regions, following the opinion issued by the Council of State on June 18, 2018.
It should be recalled that “split-purchase” is an estate planning technique that consists in purchasing (im)movable property in a dismembered form: the parent purchases the usufruct of the property and the child buys the bare ownership. Therefore, on the death of the parent, the usufruct is extinguished and the property becomes fully owned by the child, in principle without taxation.
Nevertheless, from a tax point of view, a legal fiction has been created (i.e. art. 9 of the Inheritance Tax Code and art. 184.108.40.206.7 of the Flemish Tax Code) according to which the property in its entirety will be presumed to form part of the usufructuary’s estate, except where it can be proved that it is a hidden gift. Thus, in order to reverse this presumption and avoid the application of the tax provisions, it is common practice for the parent to make available, prior to the purchase and via a (registrable) donation, the funds necessary to acquire the property.
Previously, the federal tax authorities allowed the presumption to be reversed, provided that (i) either the previous donation of the funds had been registered (necessarily implying the levying of the 3% gift tax in the Flemish and Brussels Regions and 3.3% in the Walloon Region for direct line donations) prior to the acquisition of the property, or (ii) the taxpayer could demonstrate the absence of a link between the donation and the (im)movable purchase. This position has been taken over by the tax administration of the Flemish Region (VLABEL) and extended, in 2016, to split transfers of (portfolio-) securities and cash investments.
However, on 12 June 2018, the Council of State called VLABEL to order, pointing out that it is irrelevant as to how the purchaser of bare ownership had obtained the funds intended for its acquisition. The question of whether or not the gift had been registered in advance was therefore irrelevant. VLABEL therefore had to revise its position.
In this respect, the federal tax authorities asserted on July 7 that in order to provide proof to the contrary, it was sufficient for the bare owner to demonstrate that the donation took place prior to the signature of the purchase deed, no more and no less. Minor precision in the Brussels and Walloon Regions: if the sale agreement provides for the payment of a sum (deposit, guarantee, etc.), it is necessary to provide evidence that the donation was made before the date of the sale agreement, even if the acquisition was made under a suspensive condition. This proof can be brought by any legal means, to the exclusion of any proof originating from the parties themselves, such as the oath or the claims of the parties (thus an “attached pact” does not seem sufficient).
However, in the Flemish Region, this latter condition does not seem to be required, so that it would be sufficient for the donation to take place before the notarial act of sale is signed.
The new position of the federal tax administration applies to all split purchases made after 1 August 2020.