Belgian Real Property in a Trust
In a recent decision nr SP 22004 dated 20 June 2022, the Flemish Tax Authorities (in short “Vlabel” for “Vlaamse Belastingdienst”) have clarified the taxes due upon the transfer of a Belgian property to a trust and the subsequent transfer of the property to the beneficiary.
The decision related to the plan of a non-resident to transfer a Belgian property to a US living trust where the taxpayer is settlor and trustee.
The Belgian stamp duty is a registration tax due at the time the purchase of real property is registered. Only deeds that must be registered by law are to be registered. A trust deed is not such a deed and must not be registered. It can be voluntarily presented for registration e.g. to register the date of the trust deed.
However, if Belgian real property is transferred in the trust deed, it must be registered.
Vlabel has confirmed that no Belgian stamp duty is due by the trustee because he is also the settlor and the owner of the property. The latter effectively keeps the right to manage and dispose of the property. Vlabel deviates from a position of the federal Ruling Committee that had decided in 2014 that the property had left the estate of the settlor who was also the trustee at the time the trust was settled (Ruling 2014.179).
This decision does not deal with the situation where the trustee is not the settlor. The question remains whether the stamp duty is due.
The registration tax for the purchase of real property is 12.5%, (12% in Flanders). The tax is due when property is transferred "for valuable consideration”. Can we say that this is the case for property that is settled because the trustee does not give any consideration; the trustee’s obligations cannot be seen as compensation for the transfer of the property.
However, it is clear that real property is converted into movable rights vis-à-vis the trustee and that may be seen as compensation.
At the time the trust deed is registered, the fixed registration tax of €50 will be due.
What Vlabel does not say is that when the trust is settled for the benefit of the settlor, gift tax cannot be due. However, gift tax will be due by the beneficiary (who is not the settlor) when he accepts the benefit. When the gift tax will be due depends on the nature of the trust.
- If the trust is a non-discretionary trust, the beneficiary receives the property when they accept. If they accept in the trust deed, gift tax will be due immediately. If he accepts in a later deed, gift gift tax will be due at that time.
- If the trust is a discretionary trust, the beneficiary receives subject to a condition precedent that the trustee gives him the property. When the property is transferred, the condition precedent is fulfilled and the gift tax is due as soon as the beneficiary accepts.
This decision follows the position of the federal tax administration in 2004 (E.E./100.383, R 131/17.01)
At the time of the creation of an "irrevocable discretionary trust" no gift tax will be payable by the beneficiary since the trust assets are not immediately and irrevocably transferred to the beneficiary. As long as the beneficiary has not accepted the benefit of the trust, there can be no question of a gift.
Upon acceptance, the presence of the condition precedent (deferral of taxation until the actual beneficiary) must still be taken into account.
And the same decision stated about inheritance tax (E.E./100.383, S 8/29.01)
In the case of a discretionary trust, the entitlement to compensation depends on the decision of the trustee. Since the beneficiary's entitlement (the benefit) is and remains subject to the trustee’s discretionary appreciation, the exact extent of that entitlement is, at the date of the settlor's death, uncertain and cannot, in fact, be liable to inheritance tax until it is certain whether and how much the beneficiary will receive. In fact, the beneficiary is a beneficiary under the suspensive condition of the decision of the trustee to pay the compensation.
As long as the decision to pay the benefit has not been taken, the inheritance tax cannot be claimed under Article 8 of the Inheritance Tax Code.
Of the essence is the acceptance of the benefit by the beneficiary. This is also required for any gift under Belgian civil law. The acceptance cannot be presumed; it must be explicit in writing. Registering a trust deed that mentions the value of the assets settled is not sufficient. Vlabel requires the identity of the beneficiary, the size of the benefit and the acceptance by the beneficiary must be clearly expressed in the deed that is submitted for registration so that the gift tax can be levied. This also means no inheritance tax can be due later.
This is, however, an exceptional and unlikely situation. It is rare that a trust deed will include Belgian real property. Furthermore, unlike in Belgium, trust law does not require the acceptance of the benefit, so that there can be no gift between settlor and beneficiary.
The decision is in line with Vlabel’s earlier decisions on the application of inheritance tax to distributions from trusts in its decisions nr SP 15033 and 15076. These decisions related to the estate of residents of the Flemish Region, the current decision related to Belgian real property held by a non-resident.
Vlabel’s position is that inheritance tax is due in any event on a distribution of trust assets.
- in the case of a non-discretionary trust, the inheritance tax is payable immediately.
- With a discretionary trust, the inheritance tax is due when the trustee decides to make an actual distribution. The beneficiary receives the distribution under the condition precedent that the distribution is decided.
As mentioned above, if the trust is settled for the benefit of the settlor, gift tax cannot be due.
However, it might be useful to register the transfer for moveable property to get around the three year rule in the inheritance tax code. Any assets that were in the settlor’s estate in the last three years (five years in Wallonia) before his death are deemed still to be in his estate and are liable to inheritance tax. Registering the trust deed will determine the date of the transfer.