Split purchase of real estate in Belgium: a state of affairs

How does a split purchase work?

The idea behind a split purchase is simple. Parents purchase the usufruct of a property and children the bare ownership. For that purpose, the parents make a gift to their children beforehand. This pre-financing can take place:

• by a notarial deed of gift before a Belgian notary, on which gift tax is paid (3% in Flanders and Brussels, 3.3% in Wallonia), or
• indirectly by a bank donation.

Advantages of a split purchase

A split purchase allows the parents-usufructuaries to collect any rental income.

The children become full owners of the property upon decease of the parents. The extinguished usufruct accrues to the bare ownership, unless a will provides otherwise.

Important conditions

The split purchase leads to an acquisition on the occasion of the decease and not as a result of the decease. The property is no longer part of the estate of the parents-usufructuaries. Therefore, no inheritance tax or death duties are due. However, this intended advantage is only obtained if the children can prove that they purchased the bare ownership with own funds. In addition, the valuation for bare ownership and usufruct must be done correctly. 

Rebuttable presumption

A fictional provision exists both in the Flemish Region (Article 2.7.1.0.7 of the Flemish Code of Taxation) and in the Brussels Capital Region and Walloon Region (Article 9 of the Inheritance Tax Code). The property is included in the estate of the usufructuary(s) if it is not proven that the payment was made with own funds.

This fictional provision contains a presumption that the bare owner received a bequest on which inheritance tax or death duties must be paid. That presumption is rebuttable. This can be done by providing proof to the contrary that there is no question of ‘covert advantage’, but of ‘overt advantage’.

Position of Vlabel overturned

The Flemish Tax Administration (Vlabel) once took the position that this proof to the contrary could only be provided in the following cases:

• there is a registered prior gift subject to gift tax, or
• in the case of an unregistered gift,

by proving that there is no causal relationship between the gift and the purchase where the beneficiary had free disposal of the funds.

The Council of State overturned that position. Since then, the rules have differed depending on whether the usufructuary was resident for tax purposes in the Flemish Region, Brussels or Wallonia at the time of death.

Conditions in Brussels and Wallonia

The following conditions apply to all split purchases after 1 August 2020.

• The acquirer of the bare ownership demonstrates that he or she is the definitive owner of the funds by the gift, and also that he or she effectively paid his or her share of the price with those funds. How long beforehand these funds were gifted by the acquirer of the usufruct is of little importance. The fictional provision does not apply.
• It is not required that the gift was made by notarial deed. It is sufficient to prove, beyond the deed of acquisition, that the funds were gifted before the bare owner paid his or her share of the price.
• If the signed private deed of sale (which precedes the notarial deed) provides for payment of an amount (down payment, security deposit or other), the date of this private deed is decisive, even in the case of a purchase subject to conditions precedent.

Conditions in Flanders

The following conditions apply to all split purchases after 14 October 2020.

• The moment of payment of his or her share of the price is the point of reference for proving the bare owner’s possession of sufficient own funds. That is when the notarial deed of purchase is executed.
• If the signed private deed of sale (which precedes the notarial deed) provides for the payment of an amount (down payment, security deposit or other), this does not have the effect of making the date of that private deed the determining moment prior to which the gift must take place. A fixed date is not necessary for the prior gift to the bare owner.

Are you considering a split purchase and would like some advice or guidance? We will be happy to help. Please feel free to contact us.