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Declaration of estate: significant changes in

Eric Spruyt, notary-partner Berquin Notarissen cvba, Professor at KU Leuven and Fiscale Hogeschool (Tax College)

April 2015

Since 1 January 2015, the Flemish Region has been collecting its own succession duties which, incidentally, now go by the name of “inheritance tax”. This name change is only a minor detail as also the rules of play, which can be found in a new codex, have changed. The most noteworthy of these undoubtedly relate to the formalities governing the declaration of estate and to the fact that fines have gone up dramatically!

A new "coat" and name

For quite some time now, the Regions in our country have enjoyed competence in matters of succession duties. They can set their own rules of play, rates, reductions and exemptions. Collection however - in official tax jargon known as the tax "administration" - has up and until now been ensured by the Federal Government (FPS Finance). Every Region is free to decide when it wishes to organise and manage its own collection. The Flemish Region decided it would do so as of 1 January 2015. Collection will henceforth be ensured by VLABEL (Flemish Tax Administration). The authorities took this opportunity to incorporate the Flemish succession duties into the existing Vlaamse Codex Fiscaliteit (Flemish Tax Code). This Code contains nearly all the regional taxes within Flander's remit, such as property tax, car registration tax, various vacancy charges, etc. and, as of late, succession duties too. The latter were also given a new name and, in line with the term used in the Netherlands, were rechristened to "inheritance tax". The rates, exemptions (a. o. the Flemish exemption on the family home inherited by the surviving partner) and reductions remained untouched. In other areas, citizens are faced with a number of drastic changes.

Declaration of estate

As in the past, Flemish inheritance tax is calculated on the basis of a declaration of estate which heirs must compile and (timely) file themselves. New in Flanders is the mandatory requirement to use a standard form. In contrast to what was formerly the case, citizens must now complete a form, featuring numerous pre-printed sections and boxes. In other words, the new declaration of estate has been given more of a personal income tax return look. The standard form in the Dutch version can be downloaded from the VLABEL website, under the section "formulieren" (forms) (in the top right-hand corner) - erfbelasting (inheritance tax) (http://belastingen.vlaanderen.be). An exception applies to declarants residing in one of the so-called municipalities with (linguistic) facilities who can apply for and file a form printed in the French language. By way of transitional measure, VLABEL will continue to accept the former (federal) forms until 31 March 2015.

Declarations of estate are no longer filed with the regionally competent collector of succession duties in function of the deceased's former place of residence but with one central office, i.e. VLABEL. The declaration can be submitted via the link on the website, by e-mail or by ordinary post to: Vlaamse Belastingdienst, Erfbelasting, Vaartstraat, 16 in 9300 Aalst.

Tax increase for late submissions... even if you were granted an extension!

The time limit to file a declaration of estate has remained unchanged. It is still, as of the date of death: 4 months if the death occurred in , 5 months if the death occurred in a country within the European Economic Area (EEA, i.e. the 28 Member States of the European Union, plus Iceland, Liechtenstein and Norway) and 6 months if the deceased passed away outside of the EEA.

At that, nothing was changed either to the possibility of applying for an extension of the submission deadline - e.g. in complex inheritance situations or in the event of problems locating assets or heirs. In the case of a simple (read: unsubstantiated) request for an extension - which must be applied for to VLABEL – in principle a 2-month extension will be granted. Requests for a longer extension will need to be substantiated and are not granted automatically.

In the past, late submissions were only subject to a limited fine, i.e. EUR 25 per month of delay and per heir. At that, the fine was not imposed if the declaration, once an extension of the submission deadline had been granted, was filed within the extended time limit. The payment term did continue to run however. Once the due date had expired, moratorial interests of 7% applied. But the accrual of interest could be halted by lodging an advance into the account of the succession duties collector. Thus, succession duties were estimated as best as possible and paid into the taxman's account prior to the expiry of the payment deadline and well before the taxman sent out a request for payment.

In this respect, the rules of play have been overhauled completely and the fines, currently in the form of tax hikes, have increased dramatically. So, citizens beware! Anyone who does not complete (and file) his/her own declaration but gets a professional (e.g. notary, tax consultant, etc.) to organise this on his or her behalf would be well advised to contact that person immediately after the death to ensure that the file is started up as soon as possible. In view of the serious financial implications, a timely submission has become more desirable than ever.

For, what has changed? Three important issues: 1) the fine for late submissions has increased significantly, 2) a fine will now also be incurred (albeit at a lower than the normal rate) if the declaration is submitted by the extended deadline 3) fines can no longer be avoided by paying an advance.

Late submissions are subject to a tax increase based on the following scale: - Declarations filed within 5 months of the statutory submission deadline having expired: 5% - 10%, 15%, 20% if the declaration is filed during the 6th to the 11th, the 12th to the 17th month and after the 18th month of the statutory submission deadline having expired respectively.

Even if VLABEL has granted an extension to the submission deadline and the declaration is filed by the extended deadline, a tax increase will still apply, albeit at slightly lower percentages, i.e. - in function of the aforementioned deadlines - 1%, 5%, 7.5% and 10% respectively. Mind, if also the extended submission deadline is not adhered to, the same (higher) tax increases will apply as if no extension had been granted (i.e. 5%, 10%, 15% or 20%).

So, it is worth remembering that there will be no escape from these tax increases for late submissions discussed above by paying an advance/making a prepayment on the inheritance tax.

Abolition of the ex-ante estimate In their declaration, heirs must value the assets at their market value. That can be easier said than done at times. In the past and where desired, the process of an ex-ante estimate, which the Inheritance Tax Code regulated in detail, could be availed of. This entailed that citizen and taxman appointed an expert by joint agreement who would compile an evaluation report that was binding on both parties. This could prove to be extremely beneficial. If an expert valued a property at 250,000 euro for instance, that valuation used to be retained in the declaration of estate. If the heirs subsequently managed to sell the property at a higher price (e.g. 300.000 euro), there was no additional inheritance tax due on the added value (in casu 50.000 euro). In the absence of any such ex-ante estimate and if the property was sold within two years, the taxman could collect additional inheritance tax on the difference however.

Quality charter with experts. Well, the option of an ex-ante estimate no longer features in the Flemish Tax Code. Henceforth, the Flemish Administration will perform its own valuation and retain that as a calculation basis for the inheritance tax. Heirs who do not agree with the taxman's higher valuation can either file an administrative objection procedure or go to court. Under this new system, the taxman has become judge and interested party, a change criticised in professional circles. To address that and to enhance legal certainty for citizens to some extent, VLABEL has come up with the idea of drafting a charter for surveyors which the latter can subscribe to. Citizens who contract a surveyor, signatory to the charter, to value a property for inheritance tax purposes can henceforth assume that VLABEL will in principle not challenge the valuation of the property. The charter in question sets out the criteria any qualitative valuation must meet. These criteria include those relating to the professional competence of estimators and to the actual content of the valuation report itself. The list of experts who signed the quality charter will also be published so that citizens can establish at all times which experts the authorities deem to be a qualitative partner.

Note however that the expert’s valuation is not 100% binding on the taxman but will merely be considered to be correct “in principle”. In other words, the valuation will only be presumed to be qualitatively correct. It must also be borne in mind that this system only applies to immovable assets, not to movable assets.

Tolerance for sales within 2 years. It is furthermore worth knowing that, in this context, VLABEL will practise tolerance based on the administrative practice that already prevailed in many parts of the country. If a property listed in the declaration of estate is sold within two years of the death, no tax increase will apply if an additional declaration for the difference between the sales price and the original valuation is filed spontaneously.

Flat-rate costs

But it is not all doom and gloom! In the declaration of estate, heirs no longer only have to list the assets (property, financial assets, car, etc.) at their market value but can now also deduct liabilities, i.e. debts. In the past (and in the Brussels-Capital Region and the Walloon Region also after 1 January 2015), the reality of these debts always had to be substantiated with the necessary documentary evidence (expense statements, invoices, creditors' statements, etc.). Under Flemish inheritance tax law, heirs can now opt for a flat rate. Ordinary debts, such as the so-called “final illness costs” (hospital and doctor's bills for instance) and domestic debts that remained unsettled on the date of death (electricity, water, telephone, Internet, etc.), can now be assessed at a fixed amount of 1,500 euro. Liabilities incurred to acquire or retain property (e.g., the balance on a mortgage for the purchase or renovation of a dwelling for instance) do not come under this fixed amount. The reality of this type of real estate liabilities still needs to be substantiated with documentary evidence. Funeral costs can be assessed at a fixed amount of 6,000 euro. Both fixed amounts will be corrected on the basis of the index of consumer prices on 1 January of each year.

These fixed amounts will be applied automatically unless the heir indicates in his declaration of estate that he wishes to opt for a deduction of the actual liabilities and/or actual funeral costs. In that case, he will need - as was the case in the past - to enclose the relevant documents in support. But here too, citizens are being facilitated. Henceforth, they can simply submit a copy of these documents as an original is no longer required. In the event of doubt, VLABEL can always look for the original of course. At that, heirs can also opt for a combination of the flat rate and the actual liabilities. In other words, declarants no longer have to choose between a flat-rate system and no flat-rate system. They can for instance opt for the fixed amount of 1,500 euro for any unsettled domestic expenses and claim the actual funeral costs (or vice versa).

Payment via notice of assessment

The manner in which Flemish inheritance tax will be collected is also completely new. Henceforth, inheritance tax will be assessed and, as is the case for personal income tax, a notice of assessment will be issued and sent out. For a period of 5 years (9 years in the case of fraud) as of the start of the submission period, i.e., in principle, as of the date of the death, the estate can be subject to an additional assessment. The notice of assessment is issued in the name of the taxpayer but sent to the address of the elected domicile listed on the declaration of estate. Like in the past, domicile can be elected at the address of the deceased, at the address of one of the heirs or at the address of the professional advisor who helped to draw up the declaration (e.g. the notary's office). The inheritance tax liability must be settled within a period of 2 months of the date of dispatch listed on the notice of assessment. Also this payment period is new. Before 1 January 2015, the payment period was linked to the applicable submission period for the declaration (submission period + 2, so people had 6, 7 or 8 months respectively to settle their liability as of the date of the death depending on whether the death occurred in Belgium, outside of Belgium but within the EEA, or outside of the EEA).

Moratorial interests (currently still ad 7%) are due if the heirs fail to pay within two months of the date of dispatch of the notice of assessment. So this too has changed. In the past, these interests accrued automatically as of 6 months (7 or 8 months, depending on the case) of the death.

Brussels and Wallonia?

In these Regions, nothing has changed. Also the rates (and reductions or exemptions) remain unchanged here. Collection is still ensured by the Federal Administration and declarations of estate can still be filed with the regional succession duties offices on the old (blank) forms. If the declaration of estate is submitted late, heirs are still only liable for a 25 euro fine per heir and per month of delay. At that, the moratorial interests of 7% for late submissions can still be avoided by timely paying an advance on the inheritance tax owed. Also the ex-ante estimate can still be availed of.

Note: would you like more concrete information after reading this text? Unfortunately Berquin Notarissen cvba is unable to advise you by email. If you wish, you can phone to make an appointment with one of our lawyers or notaries.