The new inheritance law: challenges and possibilities
Since the modernisation of inheritance law, more and more people have been making their wills. The modernised inheritance law gives you more freedom to settle your estate, and we are all eager to make use of it.
It’s a good idea to take action while you’re still alive, because inheritance tax remains very high. We take stock of the new inheritance law with Evert Huyge - wealth planner at VGD.
Refresh our memory: what were the main focuses of the new inheritance law?
Two points really stand out: first, the increase to 50% of the proportion of your estate that you are free to decide about as you wish. Regardless of how many children you have, you can now leave up to 50% of your fortune to anyone you like without having to give any justification for doing so. Second, there is the relaxation of the prohibition on succession agreements, which means that you will be able to make arrangements while you are alive for the distribution of some of your assets later on.
There are also general succession agreements. What are they exactly?
A general succession agreement is actually an agreement in which the mother and father try to settle things with their children – all their children – and sit down together to discuss the distribution of part of their assets. It should be pointed out that this is not a distribution of the subsequent estate. It’s actually a kind of interim summing-up of what has already taken place and an attempt to strike a balance between the different children.
Would you like to know more about the new inheritance law and how to make effective plans for your family? Our advisors have drawn up a complete step-by-step plan for you, full of tips and tricks on how to plan things properly for your family.
On the subject of inheritance tax, you still have to pay 27% on the part of the estate above 250,000 euros. Isn’t that an awful lot?
That’s right, and it remains the case under the modernised inheritance tax rules. Everything above the ceiling of 250,000 euros will be taxed at 27% for direct heirs. Anyone else – in other words brothers, sisters, nephews, nieces, the postman or whoever – will in principle be liable to pay 55% inheritance tax above a ceiling of 75,000 euros.
People have worked and saved their entire lives to build up a little bit of wealth, and at the end of life they then have to give up almost a third?
That’s right. Let’s say you pay 7 or 10% registration tax when you purchase a home. If you take out a loan, you’ll pay it off out of salary that's not very kindly taxed in Belgium. And then sooner or later inheritance tax comes on top of all that.
Why has the Flemish government kept the percentage at the same level?
In my opinion, the reason is two-fold: first, there’s a political and ideological aspect, because inheritance tax has its origin in the redistribution principle – a form of solidarity. Second, of course, budgetary considerations cannot be ignored. Bear in mind that Flemish inheritance tax generates 1.3 billion euros for the Flemish budget. This makes it clear that every choice, and every potential shift or reduction has a strong budgetary impact, and that a complete scrapping of inheritance tax is definitely unlikely to happen.
Does the new inheritance law affect the transfer of companies to the next generation?
‘Definitely! With the introduction of the new Companies Code, it’s actually possible to separate the ownership value – the asset value – from the voting rights and/or profit-sharing entitlement of shares. This creates a huge number of possibilities, as the parents could transfer 99% of the shares, but – temporarily or permanently – still maintain control the company.
So they can retain their voting rights?
Yes, and to that extent it can certainly be an alternative to the traditional gift with reservation of usufruct.