Not long ago, a bill was submitted intended to make the registration of foreign gift deeds relating to movable property registered by a Belgian resident before a foreign notary public, mandatory. This would definitively put an end to the so-called ‘cheese route’, i.e. the practice of having a Dutch notary notarise the donation of movable securities such as shares or investment portfolios.
Today’s law currently only mandates that Belgian notarial deeds be registered. This mandatory registration automatically results in a gift tax levy on all gift deeds notarised in Belgium.
By contrast, the registration of notarial gift deeds certified by a foreign notary is not required, meaning that gift taxes only arise in the event of voluntary registration.
It’s also why it is common practice to call on the services of a Dutch notary public for movable security-related estate planning.
Nevertheless, as a practice, it isn’t entirely without risk. In the absence of voluntary registration, for example, inheritance tax will still be due should the grantor die within three years of the donation. Moreover, the Flemish Government Agreement has already proposed extending this ‘caution period’ to four years, starting in 2021.
If one is lucky enough to survive that three- or four-year period, however, the donation will be exempt from taxation, to include inheritance and gift tax.
The new bill currently aims to eliminate the option of tax-free donation by extending the registration obligation to cover all foreign notarial gift deeds across all regions.
It would, however, still remain possible, in principle, to donate abroad. However, from this point on, foreign gift deeds would also ‘automatically’ incur gift taxes due to their mandatory registration.
Where handsel and bank donations are concerned, the bill would have no effect. In other words, these would continue to be viable without mandatory registration (and therefore without automatic levy of gift tax but entailing the potential charge of inheritance tax in the event of death within the ‘caution period’). That said, a bank donation is not viable for registered shares, or for donations subject to usufruct. What’s more, notarial deeds offer benefits in terms of enforceability of the charges associated with the donation.
Despite this currently only being a proposal, this initiative could, in the short term, effectively lead to the disappearance of a common form of estate planning.
However, it is important to mention that if the new system is introduced, it will only impact future donations. Specifically, that means that the amendment will only impact donations made after its publication in the Belgian Official Gazette. In principle, retroactive application will not be possible, and so previous donations are not at risk.
We are keeping close track of these developments on your behalf. Should you have any questions, please do not hesitate to contact us.