On 10 December, we made two presentations on wills and estate planning at the annual Expat Financial Affairs event of the British Chamber. Here are some of the questions and our answers.
Real estate acquired before marriage is personal or communal property?
Under the Belgian default matrimonial property rules, spouses have community property from the day they get married. Everything spouses acquire during their marriage is community property. Everything they owned before they married, everything they receive by way of gift or inherit during the marriage is their personal property.
Most people start with very little, a car and some furniture, but after 15 years, these are gone. Anything they acquire during their marriage is deemed to be community property: net earnings, income from personal savings and investments as well as the house they buy together with a mortgage loan that they pay off with their earnings, etc… All bank accounts, whether opened by the husband, the wife or on behalf of both spouses, are deemed to be community property.
Real estate acquired before marriage is personal property.
Keep in mind, however, that if your personal property is paid off with community property (your and your spouse’s net income), you have a debt vis-à-vis the community property that will have to be settled in case of divorce and/or at death.
Would my heirs pay inheritance tax on assets I have in the US? Both here and in the US?
The answer depends on your situation. We assume that you are living in Belgium. As a Belgian resident, your entire estate is liable to inheritance tax in Belgium.
Whether inheritance tax is due in the US depends on your nationality .
If you are a US citizen, the US inheritance tax (Federal Estate tax) is due on all your assets, wherever they are located. The Federal Estate Tax is due at 40% over the Federal Estate Tax exclusion of US$11,580,000 (going up to US$11,700,000 in 2021).
This is a lifetime exclusion that covers both gift tax and inheritance tax. No Federal Estate Tax is due as long as a US citizen does not give more than US$11,580,000 during his lifetime or in his will. In other words, a US citizen cannot give US$11,580,000 during his lifetime and US$11,580,000 in his will. He must keep a tab of the gifts he makes (except for gifts under UDS15,000) to make sure he does not exceed the Federal Estate Tax exclusion during his lifetime.
If you are not a US citizen, the Federal Estate Tax is due on any assets you have in the US. This is not only real property, but also stocks and stock options in US companies that are deemed to be situated in the US so that the Federal Estate Tax is due. For non-US citizens, the exclusion is only US$60,000.
This means that there is, indeed, a real risk of double taxation in the US and in Belgium.
There are ways of mitigating the inheritance tax to avoid double taxation or even taxation in Belgium.
Regarding cross-border inheritance tax. We are UK and Belgian citizens and have a share portfolio in the UK. Will this be treated for double taxation? How much and how to avoid it?
Your citizenship (UK or Belgian) is irrelevant for the inheritance rules and the inheritance tax. It is your residence/domicile that counts. I guess you have been here long enough to have lost your UK domicile.
However, a share portfolio in the UK is deemed to be UK located and, therefore, UK inheritance tax will be due on this portfolio, but not between husband and wife. It would only become liable to inheritance tax when both spouses have died.
Belgian inheritance tax will be due on all your assets including your share portfolio in the United Kingdom. Belgium does not grant a tax credit for the UK inheritance tax on movables; the UK inheritance tax can be deducted from the value of the portfolio before the Belgian inheritance tax is calculated.
Practically speaking, I assume that the portfolio is a joint account between your spouse and yourself. This means there will be no UK inheritance tax on the first death. Furthermore, as the account is a joint account, you will not need probate to release the account.
Upon the second death, the inheritance tax that your children will have to pay will be 40% on every £ over £650,000 (the nil rate band for both parents).
E.g. if the portfolio is worth £1 million, the UK inheritance tax will be 40% of £350,000 or £140,000. The Belgian inheritance tax will be calculated on £ 1 million minus £140,000, or on £860,000, that is about €940,000.
Assuming you own nothing else and you have one child, the Belgian inheritance tax (in Brussels) will be €86,800 on the first €500,000, and 30% on 440,000. If you have assets worth €500,000, the entire portfolio would be taxed in the higher tax bracket at 30%.
So, here is my situation: I am currently married to a Belgian & living in Belgium. I am about to inherit a property in South Korea from my parents. The property’s fiscal value is around €X___.
In this case, would I be taxed in Belgium for the property I own in Korea?
Through some internet research, I found there are, indeed, treaties for double taxation avoidance between Belgium and S. Korea.
If you live in Belgium and you inherit a property in South Korea from your parents who are resident in South Korea, Belgian inheritance tax will not be due.
Of course, inheritance tax will be due in South Korea. On the first €75,000 (KRW 100 million), the tax is 10%. On the bracket above that, it would be 20%. You will be looking at about €48,500 in inheritance tax, but only in South Korea.
When you die as a Belgian resident, then Belgian inheritance tax will also be due on the property in South Korea, and your heirs will be able to deduct the South Korea inheritance tax.
Keep in mind that when you have property abroad, income tax may be due. When you own the house, and you rent it out, or even when you don’t, income tax will be due in Belgium. The tax is to be calculated on the equivalent of the Belgian cadastral revenue (the rules are being changed). Nevertheless, under the double tax treaty between Belgium and South Korea, Belgium must exempt that income, but the Belgian tax authorities may take account of the theoretical rental income when they calculate the tax rate on any other income that is taxable in Belgium. If you have no income, then that is not relevant. If you have other income (e.g., remuneration), the theoretical rental income will push that income slightly higher in the income tax brackets.
Please note that the double tax treaties Belgium has signed only relate to income tax, not inheritance tax.