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Donation of our family house to children

Question

Our notaire is proposing we donate our Belgian property, in Wallonie, pay the appropriate tax and there will be no Inheritance tax on that at our death(s).
We have one child in Belgium and two resident in the UK.
I know the rule applies for Belgium but will the two in the UK have anything extra to pay as a result of the donation?

anon

No Inheritance tax, however there could well be capital gains taxes when they eventually sell the property.

After you have died, and they sell, they will have a capital gains tax liability on any gains from the day they recieved the property. You would be well advised to seek professional advice from a UK solicitor.

Sep 11, 2020 09:41
kasseistamper

We all want to minimise the amount of tax that we have to pay but to give away your home in order to save SOMEONE ELSE from having to pay tax does not seem very wise to me.
The idea of my UK based kids wanting to come to live in Belgium is non-existent.................at this moment. Unfortunately I cannot guarantee that no disaster will arise in their life that will not leave them needing to come and live here and/or to sell up and leave me homeless. However remote that chance may be, it is not one that I would consider taking.

Sep 11, 2020 10:08
newonline

Anon you say there could be Capital gains tax on the sale. Who would make this demand for Capital gains? Assuming the appropriate tax is paid on the act of donation and the house is sold on 1st or 2nd death where does the Capital gains apply and how and at what percentage is it calculated ?
It appears to be a popular thing to do by Belgians I am told.

Sep 11, 2020 15:25
becasse

The Capital Gains Tax would be paid by your UK-based children (for whom UK tax laws apply) on the deemed increase in value (in sterling) between the time that they became part owners and the time that the house was eventually sold. The property exemption from CGT in the UK doesn't apply to overseas property.
Remember that the house may not have increased in value at all, or only marginally, in Euro terms but if the Pound drops substantially in value post-full Brexit (which is a real possibility) that would create a capital gain in itself.

Sep 11, 2020 16:52
anon

@ Newonline.
1) As a very general principle, there are no capital gains taxes (CGT) in Belgium on residential property (Which is why a lot of Belgians give their property away to their children, often many years before they die.)

2) In the U.K. if a property being sold is either overseas, or if it is not your principle primary residence, then it is subject to capital gains tax. (Which is why very few people in the UK give away their houses early to their children. There are other reasons, but this is an important one.)

When you give your house to your children, they have aquired a property as of a certain date. Lets assume in 10 years from now you die and they decide to sell the house. Any gain they have made on the sale of the house will be taxable (in the U.K.).

Assuming one child stays in Belgium, they will have no CGT to pay. However the two that live in the U.K. will have CGT to pay on the gain they made between the date you gave it to them and the date it is sold.
https://www.gov.uk/tax-sell-property/selling-overseas-property

Each child will be able to make use of their CGT allowance (assuminig they haven't used it already), which at the moment is £12,500. The rate of tax will depend on their marginal tax rate. The current CGT rates for disposing of residential property are 18% or 28% depending on how much you earn.

Again, I would suggest that you would be well advised to seek professional advice from a UK solicitor, or at least a Belgian advisor who knows and understands U.K. tax law.

Sep 11, 2020 17:14
newonline

Thank you for such comprehensive advice. Strangely my son in the UK mentioned this possibility, but somewhat ‘naively ‘ I assumed our notaire would have pointed this out.
We shall take independent advice before going ahead.
Again grateful to you all.

Sep 11, 2020 18:04
Frank Lee

KASSEISTAMPER,
When you donate your house to your children, you keep the right to remain in the house until your death (usufruct). They can't kick you out and sell it while you're still alive.
As of your question of why you would make an effort to "save SOMEONE ELSE from having to pay tax," that SOMEONE ELSE is your child, and most people do what they can to help their children.

Sep 16, 2020 11:03
anon

@ Frank Lee - the reason NEWONLINE asked the question is that two of their children are based in the U.K. Depending on the value of the property and how long NEWONLINE lives, gifting the property to their children could quite possibly INCREASE the amount of tax that they need to pay, when the house is eventualy sold.

There is also the added complication that in UK tax law, if you give your house to someone, unless you pay a market rent to the new owners (i.e. your children), you are not considered to have given the property away, so it would continue to be included as part of your estate for inheritance tax purposes.

That is why NEWONLINE should consult a UK solicitor, or a Belgian advisor who has even a basic understanding of U.K. tax law.

Sep 17, 2020 10:42
kasseistamper

@FRANK LEE
My late wife and I researched this in great depth whilst she was still alive. As this was around 15 years ago I cannot be absolutely certain of all the details and, of course, some things might have changed and may not be identical between Flanders, Brussels and Wallonia.
However, in Flanders, the inheritors DO (DID) have the right to kick you out in certain circumstances. Firstly, they must all agree and do so officially in writing. Secondly, there is a legal scale of compensation which they must pay and it is based on the age of the parents. The payment is sufficiently severe that the inheritors would have to be fairly desperate to take this action but they can do so if they all agree.
And, BTW, for at least the last 10 years, I have given each of my 3 UK based kids the maximum sum allowed each year which will not leave them with tax to pay should I not last a further 7 years!

Sep 17, 2020 11:34