NEW TAX SYSTEM FOR SECOND HOMES ABROAD: POSITIVE NEWS AT LAST?

Matthias Verbueken   |  

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Matthias Verbueken

Matthias is part of the Tax & Legal team.

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What exactly was the problem in the past?

Until now, second homes in Belgium have been taxed differently from second homes abroad. More specifically, the (outdated) cadastral income (CI) of a real estate property is taken as the starting point in this country. The CI is a fictitious rental income attributed to the property in question, but it reflects the income from the property in 1975, which is no longer up to date. This is the basis on which the tax is levied. However, there is no such system abroad, so for those properties the actual rental income (if let) or the current rental value, if one uses the property oneself, is taken into account. This is essentially disadvantageous. After all, the Belgian CI is lower than the actual rent (or rental value) of the foreign property.

This type of unequal treatment has been the subject of (justified) discussion in Europe for many years. In a judgement dated 2 April 2018, the European Court of Justice once again condemned Belgium for the different tax treatment of unlet Belgian and European real estate on pain of a penalty payment of no less than 7,500 euros per day.

What exactly will be done to remedy the above? 

On Wednesday 2 December 2020, a bill was published with a view to remedying the abovementioned problem. The bill has not yet received final approval by the entire government, but no further significant obstacles are expected to arise.

More specifically, the tax authorities will henceforth grant each foreign property a CI on the same (outdated) basis as that of a property in Belgium (some 150,000 properties are concerned). In order to calculate this correctly, owners of a second home will be asked, in the course of 2021, to communicate the normal sale price by means of a written questionnaire, a precise description and the location of the property. In the event that the abovementioned value is unknown, the purchase price  and the year of purchase, as well as the cost price and date of completion of any renovation work (if applicable) must be communicated.

The aim is to be in possession of all the information by March 2022, in order to be able to declare the homes in the declaration of June that year.

Conclusion

Despite the fact that the government has opted for a somewhat complicated solution, by stubbornly sticking to the outdated CI in Belgium and extending it to properties abroad where necessary,  at least there is now clarity concerning the tax system that applies to a second home abroad (and the daily penalty can be waived).

It is expected that anyone who currently has foreign property will now have to pay somewhat less tax. The Finance Cabinet, on the other hand, states that the whole exercise will certainly be tax-neutral and should therefore not have any adverse effects. Time will tell. In short, it is expected that, because of the aforementioned bill and control of its implementation, more and more Belgians will be encouraged to actually report the real estate they have abroad in the near future.

Should you have any further questions about this regulation, please do not hesitate to contact us.

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