Neutralisation suspect period in case of indirect gifts

The tax-friendly bank donation, and by extension all indirect donations, are not required to be registered and consequently do not incur gift tax unless one chooses to register the donation spontaneously.

However, not registering the indirect donation carries a risk. If the donor dies within a certain period after the indirect donation, (higher) inheritance tax will be due. This period is also known as the “suspicious period”.

The suspect period was created to prevent people from giving away their entire wealth just before their death without the taxman getting a snatch.

There has been much political debate in recent years about the length of this “suspect period” for unregistered indirect gifts. The final result is a compromise that is typically Belgian: a territorially fragmented and non-uniform regime.

Since each region has the power to work out its own tax regulations, there is no uniform suspect period for the whole country, or what did you think. The constant, however, is that through (attempted) extensions, people are clearly looking for additional funds to bolster the budget coffers.

• In Flanders, the suspect period is 3 years for now. At the end of 2020, there were plans to extend this to 4 years, but that track was eventually abandoned as a passport to closing the aforementioned “cheese route”. With the recent extension of the suspect period to 5 years in Brussels, the question now arises whether Flanders too will make a similar adjustment. For family companies or corporations that meet the conditions for the family benefit regime according to Flemish standards, a suspect period of 7 years applies.

• In Brussels, the government has reached an agreement in principle to extend the suspect period to 5 years. For the time being, for unregistered donations, the previous suspect period of 3 years remains in force. No separate period is provided for family companies or businesses that meet the conditions for the family favour regime according to Brussels standards.

• In Wallonia, the suspect period has been 5 years since 1 January 2022, but with retroactive effect until 1 January 2019. Thus, for a Walloon resident who made a private, unregistered donation in March 2020, the suspect period still runs until March 2025. Again, no separate period is provided for family companies or enterprises meeting the conditions for the family benefit regime according to Walloon standards.

To determine which regional suspect period now applies, the region in which the deceased was domiciled at the time of death is considered. If the deceased lived in more than one region during the five years preceding the death, the region where the deceased lived the longest during those five years is considered.

If you want absolute certainty that you will still not have to pay inheritance tax, there are some ways to “neutralise” the suspect period.

• First, one can choose to still pay gift tax on the movable gift. This is often done “in extremis”, such as when the donor is dying. One then registers the moveable gift at the registry office and pays the applicable gift tax rate. In Flanders and Brussels, it is 3% for donations in direct line and between partners, and 7% for donations to others. In Wallonia, the rates are 3.3% and 5.5% respectively. Paying the gift tax eliminates the suspect period and the risk of inheritance tax on the donated movable property.

• A perhaps cheaper alternative to this is temporary inheritance insurance. Its concept is simple: the donee insures against the risk that the donor dies within the suspect period, to the amount of the potential inheritance tax on the gift in question.

In a traditional parent(s) (donors) – child (donee) construction (ABA – construction), the child will take out an insurance policy that will pay a capital sum to the child on the death of the parent(s). This enables the child to pay the inheritance tax due on the inheritance he/she receives.

Schematically, this looks as follows:

The cost of temporary inheritance insurance varies and depends on several factors, such as the insurance company per se, the age and overall health status of the insured and the type of insurance.

Health factors include smoking behaviour, BMI and cardiovascular health at the time of underwriting.

The type of insurance concerns the distinction between “all-risk” insurance (comprehensive inheritance insurance where you and your heirs are at ease), accident insurance and the “sudden-death” variant (a cheaper alternative that covers only some causes of death).

Whether inheritance insurance is of interest to you will depend on your specific situation. It is therefore very important to carry out a preliminary inheritance scan, analysing which heir will have to pay how much inheritance tax if fate were to strike.

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