Real estate tax
The most talked about tax change is doubtless the announced elimination of the home bonus from 1 January 2020. The Flemish Government wants to move the tax advantage from owning a home to acquiring one.
Concretely, this means that from 1 January 2020, when you take out a mortgage to buy your own home, this mortgage will no longer result in a tax advantage in your income tax return. On the other hand, the registration duties applicable when buying your own and only home will decrease from 7% to 6% (and from 6% to 5% in case of a substantial energetic renovation).
This means that there is no longer a tax advantage in the case of a new build. VAT is due on new builds and no registration duties, but the home bonus is also eliminated in this case.
What does this mean in practice?
Jan and Els, who live in Flanders, buy their own and only home on 26 December 2019 at a price of EUR 300,000. To do so, on 26 December 2019 they take out a mortgage for EUR 225,000 with a term of 20 years.
- Registration duties: 7% of EUR 300,000 = EUR 21,000
- The tax advantage in their income tax return, if they are able to reach the maximum with capital repayments and interests during the entire period, amounts to EUR 15,200
- the first 10 years a maximum of EUR 2,280 can be entered, which results in a tax reduction of *40%. This means a tax advantage of (2,280*40%) * 10 years = EUR 9,120
- the last 10 years a maximum of EUR 1,520 can be entered, which results in a tax reduction of *40%. This means a tax advantage of (1,520*40%) * 10 years = EUR 6,080
However, if Jan and Els go on a last-minute ski trip during the Christmas holidays and move their appointment with the notary to 3 January 2020, the tax situation for their purchase will be as follows:
- Registration duties: 6% of EUR 300,000 = EUR 18,000
- Tax advantage in their income tax return: EUR 0
At the moment of the purchase, Jan and Els pay EUR 3,000 less in registration duties compared to a week before, but they lose the tax advantage of the home bonus (EUR 15,200), which means that they miss out on a tax advantage of EUR 12,200.
For the purchase of a second home, a tax advantage can still be obtained, as this is a federal matter which has not yet been changed.
Tax reduction for service cheques
Service cheques will continue to exist, but the tax reduction, which is currently 30%, is being reduced to 20%. For service cheques of EUR 9, which used to cost EUR 6.30 after the tax reduction, this means that the net cost increases to EUR 7.2 per service cheque.
The Government wants to encourage people to have donations registered by a notary (which makes them subject to registration duties). Concretely, this encouragement translates into the extension of the so-called suspicious period from 3 to 4 year. This means that in case of an unregistered donation the donor must continue to live for 4 more years in order to avoid paying inheritance tax on the donation.
The rules on dual legacies will also be modified to restore their purely altruistic nature. However, lower rates will apply for donations to good causes.
A positive note is the introduction of the “inheritance between friends”, which makes it possible to assign a certain part of the inheritance to a relative or a non-relative designated as “best friend”, to which the same advantageous inheritance tax rates will apply as those applicable to direct heirs, as opposed to the higher rates applied to collaterals. However, this would be limited to EUR 12,500 per “good friend”.
In order to make working even more attractive and therefore increase the difference between job earnings and welfare benefits, a Flemish job bonus will be introduced, as a result of which those with a modest income will be granted a net tax reduction of EUR 50 per month.
If you would like more information about the measures in this coalition agreement, please do not hesitate to contact our Tax & Legal Services team.