Inheritance tax return: the value of real estate

When a Belgian resident dies, his next of kin have four months to file an inheritance tax return. They usually do this together, but they can do this separately as well, usually when they disagree.  In practice, they call upon a notary to help them file the inheritance tax return, but that is not obligatory, not even when the deceased owned real estate.

We cannot emphasise enough how important the inheritance tax return is: filing an inheritance tax return that is late or incorrect triggers a demand to pay the difference in inheritance tax as well as a fine, sometimes.

In the inheritance tax return, the heirs must list the deceased’s assets and liabilities and put a value on each of the assets and debts. The tax authorities calculate and collect the inheritance tax based on the value declared in the inheritance tax return.

It is the responsibility of the heirs to estimate the assets of the estate.  The rule is that assets, and in particular real estate, must be valued for their “market value” at the time of the death. This is the sales price that the heirs could reasonably obtain if they sold the property under normal conditions. However, the tax code does not say what method to use to determine the market value.  Moreover, the subsequent sale of the real estate can lead to a revaluation.

Guessing the correct value is risky.  Overvalue the property and you pay too much inheritance tax that you can recover. Undervalue it and the taxman may review the value; he has a database with the value of all properties that were sold, and he can easily make comparisons. If he finds that the property has been undervalued, he will not only charge the inheritance tax on the difference (in French we call this an “insuffisance”, but also a fine. 

What are the fines?

In Wallonia and Brussels, there is no fine if the difference is less than 12.5%.
If the shortfall is between 12.5 and 25%: the fine is 5% of the additional inheritance tax.
If the shortfall is between 25 and 50%: 10%
If the shortfall is between 50 and 100%: 16.67%
If the shortfall is more than 100%: 25%.

In Flanders, there is no fine if the difference is less than 10%.
If the shortfall is between 10 and 25%: the fine is 5% of the additional inheritance tax.
If the shortfall is between 25 and 50%: 10%.
If the shortfall is between 50 and 100%: 15%.
If the shortfall is more than 100%:  20%.

Selling the house

Often the heirs have no alternative but to sell the house just to be able to pay the inheritance tax, and that will show the real sales price. The sales deed is registered with the registration office (aptly named the “Bureau de Sécurité juridique”) and they will see when the property was inherited.  They may find that the property had been undervalued and demand more additional inheritance tax and a fine.

An additional tax or a fine will not be due if the heirs can prove that they received a higher price because they carried out renovation works after they inherited, or because the buyer paid a higher price than the market value.

If not, the heirs can avoid the fine if they file a new inheritance tax return in which they report the higher sales price, the tax authorities in Brussels and Wallonia may waive the fine. The Flemish Tax Authorities (in short “Vlabel” for Vlaamse Belastingadministratie”) do not waive the fine but limit it to 10%.

If, on the other hand, the heirs have overvalued the house, and they cannot sell it for the price they had guessed in the inheritance tax return, they cannot recover the excess inheritance tax.

And if the taxman does not agree?

The tax authorities compare the value of the property with the value of other similar properties. It is therefore possible that the value they estimate does not correspond at all to the reality e.g. when the house is dilapidated or has suffered significant damage.

It is then a good idea to invite the taxman to visit the house or to send him a file with pictures.

If the heirs and the tax administration cannot come to an agreement, it will be necessary to have the property surveyed, at least in Wallonia and in Brussels. A surveyor is appointed who will determine the market value of the property. This valuation is binding on both parties, but the heirs must pay the cost. It is preferable to settle with the tax administration rather than go for a survey.

In Flanders, it is not possible anymore to have a surveyor appointed. The only option the heirs have is to contest the position of the administration.

Can you avoid a reassessment?

As the tax authorities can challenge the valuation of the house for a period of two years after the inheritance tax return was filed, it may be advisable to wait two years before selling the house. 

In Wallonia and in Brussels, the more cautious heirs may ask for a binding survey before filing the inheritance tax return, at their own expense. The survey is binding on both parties.  Even if the heirs then sell and receive a higher sales price, within two years, the tax authorities cannot charge additional inheritance tax. But if the heirs cannot get that price from a buyer, they cannot get any inheritance tax back.

In Flanders, the heirs can also ask for a binding survey before they must file the inheritance tax return. Vlabel’s agents then visit the property and file a valuation report. The ABS (algemeen bindende schatting) is binding on Vlabel. The heirs can contest the valuation when they receive the tax bill. The agents survey properties in Flanders but also elsewhere in Belgium if the estate is liable to inheritance tax in Flanders.

There is an alternative. Vlabel has drawn up a quality charter to which surveyors can adhere. The charter defines the criteria that a quality surveyor must meet. When the heirs have a property valuation drawn up by one of these expert surveyors before they file the inheritance tax return, Vlabel will in principle accept the valuation. The survey costs about €450. The survey may not be formally binding on Vlabel, but it will be presumed to be correct.