It became clear this week that the so-called "cheese route" will close from 1 December 2020. This mainly affects gifts of movable property. But the law change will also have an impact in the context of a purchase of foreign real estate. In this post, we explain one and all.
What is the cheese route?
The cheese route refers to a donation of movable property (e.g. cash) at a Dutch notary. This has two concrete advantages.
The first advantage is that you donate with a notarial deed. This allows you to attach conditions to the donation. These conditions are usually personal in nature, but there are also clauses that are quasi always included as standard. Consider, for example, the conventional return in case of the donee's pre-decease.
The second advantage concerns gift tax. The gift tax only applies to registered donations. Belgian notaries are required to register donation deeds, so gift tax is automatically due. A Dutch notary is not required to register the donation deed in Belgium, so you will not pay gift tax on it.
Through a Dutch notary, you can therefore donate tax-free. However, you then need to live for another 3 (from 2021, possibly 4) years. If you die within 3 years, the higher inheritance tax will be applied to the donated goods.
The Belgian federal legislature will require from 1 December 2020 to include foreign gift deeds for movable property to be registered in Belgium. This means you will pay taxes on these gift deeds from now on.
What are the implications for foreign real estate?
The law focuses on foreign gift deeds for movable property. Thus, there is no direct consequence for gifts of foreign real estate. In practice, however, there is an indirect consequence.
Often, the purchase of foreign real estate is used to initiate inheritance planning. A common situation: parents buy the foreign property together with the children or entirely in the children's name. Also a split purchase is often considered.
And since the children usually do not yet have sufficient financial resources to finance this purchase, the parents donate the necessary cash prior to the purchase. The donation can then be made tax-free in two ways: either via a bank donation or via a deed before a Dutch notary. Each time on condition that the donor lives for another three years. The latter option will soon expire. Some purchases with or in the children's name will then become more expensive.
Note the impact on Flemish registration duties of a purchase in the children's name.
However, for those planning another purchase with family in the coming months, the cheese route still remains an option for tax-free gifting.
Donation of money to children resident in Spain
In certain Spanish regions, you can donate movable property advantageously if you work with a Spanish notarial deed of donation. An example: the parents, who live in Flanders, give their child, who lives in Spain, a sum of money to help finance the purchase of a house.
Since the child is resident in Spain, he has to pay Spanish gift tax. Fortunately, there is a reduction if gifts are made via a Spanish notarial deed. However, this notarial deed must now also be registered in Belgium. After all, the donor is a Belgian resident. The result is possible double gift tax: in Spain and in Flanders.
Be careful when gifting to a Spanish national resident.
Do you have questions about buying abroad and succession planning? If so, please feel free to contact on.
