Fiscal Planning: Property
Fabrice Ketoff writes:
Most foreign self-employed lawyers working in Brussels sooner or later start to consider the acquisition of a house or apartment in the Brussels area.
However, the step from tenant to property owner requires, at the very least, some awareness of the fiscal issues involved. For example, a foreign purchaser should not be surprised by the significant transfer taxes and expenses in Belgium.
This article only gives an overview of the main issues involved. Before making a property purchase, you should research these issues further as they relate to your own situation and/or seek professional advice.
Taxes and charges
I will look at the current situation in Brussels Region as the main fiscal-related property issues are largely, but not exclusively, dealt with at the regional level. If you are considering purchasing in Flanders or Wallonia, please remember the figures below may not be the same.
In in the Brussels Region, the property transfer tax amounts to 12.5% of the acquisition price. On top of that transfer tax, you must pay notary fees. Keep in mind that together transfer tax and fees can add up to 14 % of the acquisition price!
The situation is tougher if a new building is purchased as VAT - 21 % of the purchase price - must also be paid. No VAT is paid on an old building.
Depending on your situation, you might benefit from 2 types of tax relief:
1. Transfer tax relief. When you acquire the property in Brussels region, you will declare (in the notarial deed) if the property is your main residence for the next 5 years. If so, you will receive a transfer tax relief of €5,625. But if during those 5 years the property ceases to be your main residence then the whole €5,625 must be paid back.
2. Mortgage tax relief. Taking out a mortgage loan can bring a rather limited standard tax relief of €1,870 a year for the acquisition of a first home. For the first 10 years, this tax relief is increased by €620 per year (making a total of €2,490).
Self-employed lawyers: 'home office'
Self-employed lawyers often establish a ‘home office’. The interest payments relating to this home office constitute an additional professional expense.
It may also be tempting to depreciate this home office. Such depreciation takes place over a period of 33 years.
A self-employed lawyer who works via a management company (their own bvba/sprl) will have a choice:
- should s/he personally buy the whole property and rent a home office to their management company? or
- should s/he buy the property together with their management company?
The second option has different variations: all have a profound impact on the ownership structure of the property.
A popular acquisition mode is splitting the property, in such a way that the individual purchaser, in his/her personal name, acquires the so-called ‘naked ownership’ (in French ‘nue-propriété’, in Dutch ‘naakte eigendom’) and leaves the ‘life tenancy’ (in French ‘usufruit’, in Dutch ‘vruchtgebruik’) to his/her management company.
This acquisition mode is very popular amongst creative tax advisers and the tax benefits can be substantial. But this type of tax planning has come under the increased scrutiny of the Belgian tax administration. More recently, some court cases have even annulled the tax benefits related to aggressive real estate tax planning.
Other complicating factors
To clearly illustrate these issues, this article has focused on the position of a self-employed lawyer who is single. Keep in mind, a self-employed lawyer with a spouse and children will add additional factors for consideration.
A spouse always has his or her own fiscal interest which has a big impact on the fiscal arrangements.
Research and plan
Finding your ideal property often already takes a lot of time and effort and so researching the related fiscal issues is not attractive to many people.
But do not leave these matters to the last minute as property tax planning must be prepared by the time of the property's acquisition.
Try to discuss your own situation beforehand with the bank, the notary and/or a tax adviser.
To: Fiscal Planning: Introduction
Author: Fabrice Ketoff ©
Published: 13 February 2006