Planning a gift or donation? The “waiting period” has been extended
March 04, 2022
5 minutes to read
If you want to gift items other than real estate (such as money, shares, investment funds, etc.), you can usually do so in one of two ways.
- Through a notarised deed
- This is mandatory if you want to give away certain types of investments, such as term deposit accounts and endowments with life assurance.
- Also mandatory if you wish to apply conditions to the gift.
- It is not mandatory if you want to donate money, shares, bonds, trackers, investment funds, etc.
- Gift tax is payable: in Flanders and Brussels, this is 3% for a gift to direct ancestors or descendants, and 7% for anyone else. In Wallonia, you pay 3.3% for a gift to direct ancestors or descendants, and 5.5% for anyone else. Do you want to donate to a charity? In that case, subject to certain conditions no gift tax will be due.
- The beneficiary (your children, partner, third parties, etc.) will not have to pay inheritance tax on the gift when you die.
- If you make a (non-registered) gift by bank transfer
- You do not have to involve a notary, and you do not have to register the gift (if you do register it, then you have to pay gift tax).
- You transfer the money or securities and write an accompanying letter (a "pacte adjoint" or supplementary agreement) that you send by registered post. The beneficiary needs to keep this letter and the account statements carefully and leave the letter unopened.
- No gift tax is paid.
- Your heirs (your children, partner, third parties, etc.) will not pay inheritance tax on the gift, provide you survive the waiting period.
What is the waiting period and how long does it last?
In the case of a notarial deed, you do not need to take any notice of the waiting period. Whether you die one month or fifty years after making the gift, the beneficiary will not have any inheritance tax to pay on the gift.
But things are different with a bank transfer. Until the end of 2021, it was the case in all regions that the person making the gift, had to stay alive for 3 years after doing so. So, for example, if you died 2 years and 10 months after making a gift through a bank transfer, the beneficiary/ies still had to pay gift tax. The tax authorities would include the gifted capital in the estate and therefore also charge inheritance tax on it.
This inheritance tax can be substantial: to direct ancestors or descendants and between partners, the rates scale between 3% and 30% (depending on the tax bracket and the region), and to third parties from 25% to 80%. Inheritance tax is therefore a whole lot higher than gift tax.
Since 1 January 2022, the waiting period in Wallonia has been extended from 3 to 5 years. This adjustment will apply to all gifts and donations made on or after 1 January 2022. If you made a donation in 2021 or earlier, the waiting period remains at 3 years. So the extension of the waiting period does not apply retroactively.
What impact will the extension of the waiting period have in Wallonia?
If the person making the gift is resident in Wallonia for tax purposes, it becomes even more important to consider whether to make a bank transfer or gift through a notarial deed. When you make a gift, you will now have to remain alive for 5 years instead of 3. This makes a bank transfer a lot riskier.
Useful to know: the place where the beneficiary needs to pay inheritance tax is determined by the last tax residence of the deceased. If the deceased person’s last tax residence was in the Flemish Region, then Flemish death duties will apply. If the deceased was resident in Brussels or Wallonia for tax purposes when they died, inheritance tax will be levied in Brussels or Wallonia. If the deceased lived in more than one place in Belgium during the last five years of their life, then the region where the deceased spent the most time during those five years applies.
Will Flanders and Brussels follow suit?
The tax authorities prefer you to opt for a notarial deed instead of a bank transfer. This guarantees they will be able to collect money in the form of gift tax, while the tax authorities do not have this certainty in the case of a bank transfer. After all, if the donor lives 3 years after making the bank transfer (or 5 years in Wallonia), the tax authorities will receive neither gift tax nor inheritance tax.
In 2020-2021, there were proposals to extend the waiting period in Flanders from 3 to 4 years. That plan was eventually put on ice. The fact that Wallonia has now extended its waiting period has turned the spotlight back onto this topic. Whether Flanders and/or Brussels will now follow their example is still like reading tea leaves, but sooner or later it will likely be back on the table for discussion.
You already made a gift through a bank transfer then thought about it. Can you still register the bank transfer?
Yes, you can. This avoids the risk of the heirs having to pay inheritance tax. If you register the bank transfer now, gift tax will be due.
Do you need to organise a gift by either bank transfer or notarial deed for even a small gift?
Fortunately, you don't have to write down the 50 euros tucked inside a Christmas card or pocket money on Sundays, either for the notary or for your own documentation. A gift only becomes relevant if it involves a significant part of your assets. If you "distribute" less than 1% of your assets annually through gifts, the tax authorities are unlikely to be interested. If you are uncertain, then we strongly recommended that you seek advice from your notary or another expert in this area.
Does the waiting period also apply to the gifting of fixed assets, such as real estate?
No, fixed assets can never be gifted without paying gift tax. For fixed assets, you must always involve a notary.