Limit Belgian tax on homes abroad

Karel Van Hootegem   |  

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Karel Van Hootegem

At BOFIDI, Karel is the contact person for personal income tax, salary splits and all obligations of international executives.

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More and more Belgians now own a second home abroad. This comes with a fiscal price tag attached, thanks to the obligation to declare the (potential) gross rental value of real estate in the Belgian personal income tax return. This spring, however, taxpayers received ‘good’ (?!) news from the European Court of Justice, which found Belgium guilty of discrimination with Belgian-owned property.

Which country is entitled to lexy taxes?

According to the double taxation treaty that Belgium has signed with more than 90 countries, our country is in principle not entitled to levy taxes, since the real estate is taxable in the country where it is located. In practice, you do pay proper tax on your second home, since the real-estate income from your holiday home can be counted in order to determine the tax rate on your other income. As you fall into higher tax bands thanks to that additional income, you indirectly pay extra tax for your holiday home.

European Court of Justice

The next question is which income you have to declare on your tax return as the owner of a holiday home abroad. On the basis of Belgian law, you must declare the actual rental value or the real rental income. According to the European Court Of Justice, the difference in establishing the taxable income from real estate in comparison with the place where the real estate is located is in contravention of the free movement of capital within the EU. This was already declared by the European Court of Justice in April 2018, following an earlier judgment on 11/09/2014. According to the ruling of the European Court, our country will have to adjust its legislation in order to remove this discrimination. At the moment it is still unclear how Belgium will do that. But something makes us suspect that the advantageous method for taxing rental income (i.e on the basis of rateable value) may not be around much longer.

The Belgian tax authorities have now approved plans for declaring an alternative (local) value for that country for property that is not rented out. If it is a French holiday house, that will be the ‘valeur locative brute’ whilst in Spain it will be the ‘valor cadastral’ and in the Netherlands it will be the ‘WOZ-waarde’ for non-rented property. If you rent the holiday house out, your tax auditor will require the gross rental value to be given.

Deduction of loan interest

You also need to know that there is another way of limiting the tax on your second home too. If you take out a loan ‘for the acquisition or maintenance of real estate’, the interest that you paid on this can be deducted from your income from real estate. This is a perfectly legal way of reducing the taxable base of your holiday home. If you borrow from a Belgian bank, the capital repayments can entitle you to a tax reduction on the basis of the federal long-term savings plan. If your family home is mortgage free, this may be an attractive way of optimising your tax return.
The key question is how long the current real-estate taxation system can remain in place. It is therefore advisable to start taking the possible upcoming change to Belgian real-estate taxation into account now in any ongoing purchase of real estate.

If you have any further questions on this subject, please do not hesitate to contact us.