The Flemish government has given the green light for a reform of inheritance and gift tax. A number of rates will go down or to zero, which should discourage the setting up of tax arrangements. Both charities and friends who inherit win from the measure.
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The measure will take effect on July 1, 2021. That is later than initially intended. According to the initial timing, the ‘friends legacy’ was to be introduced as early as January 1, 2021.
‘On the one hand, we are lowering the rates for inheriting or donating to charity to 0 percent,’ says Finance Minister Matthias Diependaele (N-VA). ‘On the other hand, we make it more interesting from a tax point of view to give a legacy to best friends. We do this by reducing the rate for the first 15,000 euros from 25 percent to 3 percent. ‘ The new system will come into effect on July 1, 2021.
At the start, the Flemish government has chosen to further reform the inheritance tax. For example, the launch of the ‘friends legacy’ was included in the coalition agreement. In addition, the government wants to make it more attractive to inherit or donate to a good cause. ‘Above all, the system must be fairer. Altruism takes precedence over tax planning, ‘says Diependaele.
The current inheritance and gift tax for charities is 8.5 percent and 5.5 percent respectively. The reform of Minister Diependaele will lower both rates to 0 percent.
‘With this rate reduction to 0% we provide and restore the purely altruistic element of the legacies,’ explains Minister Diependaele. ‘Many Flemish people have sincere intentions when they leave or donate something to good causes. Often people are also emotionally involved in a specific charity. They would like to give that specific charity a boost. That is why this rate reduction to 0 percent is a good thing, both for the Flemish and for charities. ‘
According to Minister Diependaele, the new system is also fairer for the charities themselves, because in the current scheme they had to pay the taxes.
In addition, the government is also working on the so-called ‘legacy of friends’. “We’re making it possible to leave part of your inheritance to a ‘best friend’ at the first-degree rate, which is 3 percent, instead of 25 percent. This rate reduction will be for the first tranche of 15,000 euros. The maximum net benefit is 3,300 euros, ‘explains Minister Diependaele.
The reform of the inheritance and gift tax comes into effect from 1 July 2021.
Various ‘charities’ immediately responded positively to the news on Saturday. “We think it is only right that the Flemish government wants to tackle the existing, hybrid system of a duo legate and its abuses,” says Marc Michils, general director of Kom op tegen Kanker, in a press release. ‘All too often, a duo legacy is used to do tax optimization instead of supporting a good cause. We therefore applaud the decision on this clearer and more direct system to donate a legacy to a charity and we are pleased that in this way the government ensures that charities do not suffer financially. ” In the current duo legacy, part of the inheritance goes to a good cause, whereby that organization has to pay all inheritance taxes, including those of the other heirs.
The duo legacy in itself remains possible after the reform, says Minister Diependaele. But it will no longer yield tax optimization for the tax bill of say the nephew or good friend. ‘The duo legacy had grown into a technique of tax planning. The donation to charity often merely served to limit the inheritance tax for the distant family or good friend to a maximum. That goes against the spirit of the system, ”the minister said.
Animal rights organization Gaia also welcomes the reform. ‘We receive zero eurocent subsidies and are completely dependent on donations, gifts and bequests for our operations,’ says Gaia director Ann De Greef. “Knowing that bequests make up a third to half of our operating resources, this makes a world of difference for us, and especially for the animals.”
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