Changes to life insurance taxation in the Brussels-Capital Region

In an ordinance published on 1 August 2022, the Brussels-Capital Region decided to align its life insurance tax system with that of the Walloon and Flemish Regions. The tax changes mainly concern life insurance donations and life insurance policies taken out by several policyholders. The Order also provides for a mechanism to avoid double inheritance tax for a Brussels resident who owns movable property located abroad.

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Gifts of life insurance policies

A parent who has taken out life insurance may donate the rights to the life insurance policy in order to avoid paying inheritance tax on the life insurance policy.
The Brussels ordinance provides that in the case of a registered gift of the policy (with effective payment of the gift tax), inheritance tax is due on the difference between the value of the policy subject to gift tax and the value of the policy on the day of death. Thus, if the life insurance policy increases in value between the day of registration of the gift and the day of death of the donor parent, inheritance tax will be due on the capital gain.

Life insurance policies with two policyholders and the post-mortem transfer

Let us take the example of a life insurance policy where two spouses married under the community of property regime are policyholders and insured of the same life insurance policy and where the death benefit is paid to their common child, beneficiary of the policy, upon the last death of the insured.

These contracts generally provide for a post-mortem clause of the rights of the life insurance contract, so that upon the death of one of the spouses, the surviving spouse can continue to exercise all rights under the contract (right to surrender or terminate the contract, right to change the beneficiary, etc.).

The Ordinance aims at taxing this kind of arrangement on half of the value of the agreement by way of inheritance tax. However, inheritance tax is only levied upon surrender or termination of the agreement by the surviving spouse or when the second spouse dies and the cash is distributed to the children.

However, depending on the situation of the spouses, other life insurance structures exist that make it possible to avoid paying inheritance tax. For example, an acquisition clause can be drafted for spouses married according to the system of separation of assets. Or for spouses married under the community of property system, it is possible to directly benefit the children while retaining a certain control over the donated amounts.

Double taxation on movable assets located abroad

When the estate of a Belgian tax resident includes movable assets located abroad and subject to inheritance tax in the country where they are located, Brussels legislation provides that the inheritance tax due in Belgium is reduced by the amount of tax paid abroad.

This rule only applied to immovable property located abroad and not to movable property. However, the Constitutional Court ruled that this difference in treatment between movable and immovable assets was contrary to the principle of equality.

The Brussels Region subsequently amended Article 17 of the Inheritance Tax Code so that all assets of a deceased Brussels resident abroad that are subject to inheritance tax in the country where they are located can benefit from the double taxation measure.

These various new measures will enter into force on 11 August 2022. In other words, these new measures will apply to inheritances whose death occurred on or after 11 August 2022.
Our legal and tax teams closely monitor the evolution of the legislation and are at your disposal for any additional information.

Thomas Roelands – legal & tax expert at Pareto SA