Double inheritance tax constitutes discrimination

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In a judgment of June 3, the Belgian Constitutional Court ruled that Belgian legislation on inheritance rights is discriminatory, insofar as it allows an allowance for foreign inheritance taxes levied on foreign real estate, but not for foreign inheritance taxes levied on movable property located outside Belgium.

Belgium levies inheritance tax on foreign property

In the event of the death of a Belgian resident, Belgium in principle levies inheritance tax on the worldwide succession. All property and movable assets (located either in Belgium or abroad) belong to the estate of the deceased Belgian resident and are subject to Belgian inheritance tax.

Belgium allows credit for foreign inheritance tax levied on real estate

When a deceased Belgian resident leaves real estate abroad, the property is often subject to inheritance tax in the jurisdiction where it is located. To avoid double taxation, Belgian law allows foreign inheritance tax to be charged against Belgian inheritance tax. Belgian inheritance tax can therefore be reduced with foreign inheritance tax levied on foreign property.

Example: A foreign property is part of the estate of a deceased Belgian resident. In principle, the Belgian inheritance tax due amounts to 100. In the jurisdiction where the property is located, the inheritance tax levied amounts to 80. Belgium grants a credit for foreign inheritance tax and will not levy therefore only 20 inheritance taxes. This means that the total inheritance tax due by the heirs amounts to 100: 80 abroad and 20 in Belgium.

However, foreign inheritance tax can only be credited against Belgian inheritance tax levied on foreign property.

Example: A foreign property is part of the estate of a deceased Belgian resident. In principle, the Belgian inheritance tax due amounts to 100. In the jurisdiction where the property is located, the inheritance tax is 120. Belgium allows the imputation of foreign inheritance tax and will not levy any other inheritance tax. This means that the total inheritance owed by heirs amounts to 120: 120 abroad and 0 in Belgium.

By granting the tax credit, double taxation is avoided. The total burden of inheritance tax on foreign property will be equal to the highest applicable inheritance tax.

Belgium does not grant foreign inheritance tax credit on movable property

Movable property located abroad may also be subject to inheritance tax in the jurisdiction where it is located on the death of the owner. Belgian law does not allow an allowance for foreign inheritance tax levied on movable property.

Example: A securities account held in a Spanish bank is part of the estate of a deceased Belgian resident. In principle, the Belgian inheritance tax due is 100. Spain levies an inheritance tax of 80. Belgium does not grant a tax credit for Spanish inheritance tax. The total inheritance tax due by heirs is therefore 180: 80 in Spain and 100 in Belgium.

No credit is authorized, a double inheritance tax is due by the heirs on the securities account.

Only 2 double inheritance tax treaties

Whether or not the foreign inheritance tax levied on movable property located abroad can be credited to Belgian inheritance tax has a significant impact on the inheritance of Belgian residents.

Belgium has only concluded 2 conventions aimed at avoiding double inheritance taxes which have entered into force, one with France and the other with Sweden. With regard to inheritance tax levied in all other jurisdictions, the national rules relating to the (non-) application of tax credits remain applicable.

Foreign property taxes deductible as a liability

Current Belgian legislation only allows foreign inheritance tax to be credited to Belgian inheritance tax insofar as it is levied on foreign real estate. No credit is granted when foreign inheritance tax is levied on movable property located abroad.

Inheritance tax, i.e. taxes collected in the hands of individual heirs on the portion of the inheritance they receive, must however be distinguished from inheritance tax. These inheritance taxes are levied on the entire estate and not in the hands of the heirs personally.

When the foreign tax concerns an inheritance tax and not an inheritance tax, Belgium in principle allows the Belgian tax base to be reduced with the foreign inheritance tax, because the inheritance tax is considered as a charge on the inheritance.

Example: On the death of a Belgian resident (United Kingdom not domiciled), the United Kingdom taxes the property situated in the United Kingdom which forms part of the succession. This tax is considered as a tax levied on the estate itself and not as a tax levied in the hands of the heirs on the share they receive in the estate. This British tax therefore relates to an inheritance tax which can be deducted from the Belgian tax base as an obligation of the inheritance.

Belgian state condemned

In its judgment of June 3, the Belgian Constitutional Court ruled that Belgian legislation on inheritance rights is discriminatory, insofar as it only allows credit for foreign inheritance taxes levied on foreign real estate, but not for foreign inheritance tax levied on movable property located outside Belgium.

New legislation expected!

The judgment of 3 June concerns a succession of 2007. This succession was still subject to the old federal legislation (article 17 of the inheritance tax code) which has in the meantime been repealed and replaced by regional legislation (article 2.7. 5.0. 4. of the Flemish Tax Code for the Flemish Region).

In response to a question put to the Flemish Parliament, the Flemish government indicated that the legislation will soon be adapted in accordance with the judgment of the Constitutional Court.

Importance for international successions

For the practice of international estate planning, the judgment of the Constitutional Court is an important development. Following this judgment, movable property included in the international estate of a deceased Belgian resident will no longer be subject to double taxation.

We are now awaiting the adaptation of regional legislation. However, in our opinion, heirs facing double inheritance tax on international estates can already apply the judgment.


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