March 24, 2017
Since 1 January 2015 and the transfer to VLABEL of fiscal powers regarding inheritance tax and part of the registration fees, intermediaries and insurance companies, lawyers and financial planners, and of course Flemish citizens seeking to structure their assets, have acted in line with decisions published by the Flemish tax authorities. While these opinions were able to clarify the position of the Flemish tax authorities on the matters in question, the points of view taken by VLABEL were surprising to say the least and have caused turmoil in the sector, going so far as to freeze certain solutions currently used and thus far accepted by the federal administration. Although VLABEL has published its new general code which consolidates the inheritance tax and registration codes, no amendments have been made to the law which could justify these contradictory views. In March 2016, Assuralia also entered the fray, lodging a complaint with the Council of State against the Flemish tax authority. Thus, the political world could no longer ignore this issue.
Shortly before Christmas 2016, a new decree was issued. Published on 30 December, its application as of 1 January 2017 has, on the whole, put a smile on people’s faces and enabled the new year to begin on a more optimistic footing. Two issues relating to insurance policies were on VLABEL’s radar and were therefore reviewed.
- Donating an insurance policy by assigning all rights
VLABEL’s decision to tax the donation of insurance despite the payment of donation fees generated hostility in November 2015. Several amendments to the original position were published without enabling the assignee/recipient to prevent the benefits that were paid to them upon the termination of the policy being subject to inheritance tax. The decree of 23 December 2016 put an end to this practice by subjecting only the gains on a policy to inheritance tax. Gains should be understood to mean the difference between the value of the insurance policy at the time of donation and the value of the policy upon termination by the death of the donor. The arrival of this new decree therefore reduced the applicable taxation for citizens in comparison with the point of view of the Flemish administration. We must not overlook the fact that the Flemish taxation is not in line with the legal principles underlying insurance policy donation. Consistency between the legal and taxation arguments is, however, well established in other regions of the country.
- Joint applications
VLABEL’s position with regard to policies taken out jointly by two policyholders, equally insured, which terminate upon the second death, has generated huge controversy which has still not eased due to cases that remain unresolved to date.
The decision intended to tax beneficiaries under the inheritance tax regime when the latter had not received any benefits and were not even certain to receive benefits at some point in future (as a reminder, the policyholder has the right to revoke the beneficiary clause at any time, provided that the beneficiary has not accepted the benefit. Pursuant to an increase clause between the policyholder in the aforementioned policy structure, this right of revocation returns to the surviving policyholder following the death of the first).
According to the decree now in force, the taxation shall come into effect upon payment of a benefit which may arise from the surrender or termination of the policy. In other words, the partial or total surrender of the policy by the surviving policyholder will generate inheritance tax, which can only occur by means of an additional succession declaration. The collection of inheritance tax upon the termination of the policy by the beneficiary remains unchanged.
This decree is not a panacea, nor a miracle cure for the much criticised decisions made by VLABEL during the last two years. While it is a relief for the recipient/assignees of existing policies, and the beneficiaries of policies taken out jointly, it offers no solution for policyholders whose aim was to optimise the fiscal impact of transferring assets between themselves. It also puts a stop to any discussion regarding policyholders married under a shared property regime. The decree raises other issues that we have chosen not to address in this article and which must, of course, be taken into consideration in finding a solution for asset structuring. We recommend that our clients contact their advisor before making any decisions on the matter and we are available to provide any information they may require.
