Giving life insurance to avoid inheritance tax is now a thing of the past. The Brussels-Capital Region will align its tax regime relating to life insurance transfers with the rules applicable in Flanders, which Wallonia had already copied. All regional legislation will therefore discourage the donation of insurance policies.
This allowed to circumvent the inheritance tax in principle due on life insurance: when the subscriber of the contract insures his own life for the benefit of a third party, inheritance tax applies upon death; but if the subscriber made a gift of all of his rights to the policy for the benefit of a third party, the transfer of assets was no longer considered to take place upon death, but upon the gift. Inheritance tax therefore did not apply.
The Brussels Region puts an end to this practice. It assimilates the transmission of the insurance policy to a bequest (transmission free of charge taking effect on death) subject to inheritance tax, as in Flanders and Wallonia.
What if the gift of the life insurance has been registered and has therefore already been paid gift tax? In this case, “the Brussels-Capital Region accepts that the basis for calculating inheritance tax be reduced by the amount that served as the basis for calculating registration fees related to the donation”, emphasizes Grégory Homans, managing partner of the firm Dekeyser & Associés. “Suppose that an insurance policy is donated with a surrender value of 500 and that at the end of the policy, the beneficiary collects 600. The latter will bear, if the initial gift has been registered, an estate tax on the capital gain of 100 only. If the gift has not been registered, the recipient will be liable for inheritance tax on 600.”
“It is prudent to consider how this novelty will impact insurance donations already made and to consider possible adjustments.”
These inheritance rights will be due even in the event of death more than three years after the donation., while unregistered donations in principle escape inheritance tax in the event of death more than three years after the donation, and even five years in Wallonia. It should be noted that Brussels does not align itself with this extended Walloon deadline.
What about life insurance donations already made? “It is prudent to consider how this novelty will possibly impact insurance donations already made and to consider possible arrangements to benefit from favorable taxation for them; a comparative approach with the practice of other Regions makes it possible to provide certain solutions”, replies Me Homans. “It is also prudent to wonder about ways to restructure, in the future, ‘AAB’ policies (life insurance taken out by a subscriber on his own head for the benefit of a third party, editor’s note) to avoid their beneficiaries to be liable for inheritance tax on the allocated capital. There are still several possibilities in this direction”, specifies the tax lawyer.
Contract “to the last alive”
The Brussels Region has also legislated on another case: so-called “last living” life insurancethat is to say taken by several subscribers and structured so that on the death of the first subscriber, the survivor collects all the rights to the insurance.
These new rules will apply from the tenth day following the publication of the Brussels ordinance.
“In this respect, the Brussels-Capital Region is adopting the principle of ‘wait and see’ (let’s wait and see, editor’s note) already known in Flanders since 2017 and in Wallonia since this year”, explains Me Homans. “Based on this principle, on the death of the first of the lessees, inheritance tax will only be due when the funds are actually withdrawn of the police, subject to certain exceptions”, underlines the expert.
These new features will apply to open policies from the tenth day following the publication of the ordinance Brussels in the Belgian Monitor, which has not yet taken place.
- The Brussels-Capital Region aligns itself with the tax treatment of life insurance donations practiced in the other two Regions.
- From now on, these donations will be treated as legacies subject to inheritance tax.
- If registration fees have already been paidinheritance tax will take this into account.
- New rules also apply to “last alive” fonts.