When you buy real estate in Belgium, you need to pay a transfer tax on the purchase price due the passing of the ownership title from the seller to the buyer (much like a stamp duty). Only in specific cases, VAT will be due instead of transfer tax. This is, for example, when you buy a new home from a property developer. Specific rules exist for when a property is considered ‘new’ for VAT.
In Brussels, the standard transfer tax rate is currently 12.5%, which is the same in Wallonia. In the Flemish Region, the tax rate is currently 12%, but a reduced rate applies under certain conditions.
If you want to become a first-time homeowner and buy a property in Brussels, you can be eligible for a transfer tax reduction, the so-called ‘abattement’. No transfer taxes are due on the first €175.000,00 of the price when purchasing your first property. In other words, you are granted a tax saving of max. €21,875.00 (€175,000.00 x 12.5%).
We have already discussed the specifics of this regime in a previous article, in which we focused on the impact of simultaneous ownership of real estate abroad.
An important condition is that the buyer should register at the property within 2 years (or within 3 years if bought under construction or ‘on plan’) as from the date of registration. They need to remain registered at the same address for minimum 5 years. In the Flemish Region, there is a similar registration requirement, but no minimum duration to reside in the property.
The underlying idea is that the buyer should have the intention to establish their main residence in the newly acquired property. Unless proven otherwise, this is deemed to have taken place on the date on which the buyer registered in the national register at the address of the new property.
Beyond your control
But what happens if you do not register on time or need to move out before the five-year anniversary?
In practice, life circumstances can suddenly change which may prevent you from moving in or need you to suddenly move out. It happens that people make last-minute changes due to personal or business reasons and in that case are no longer able to meet the above requirements.
Depending on the situation, this can sometimes be qualified as ‘force majeure’ (i.e. unforeseeable circumstances beyond your control), which may result in a (partial) waiver of the taxes due.
If you do not register within 2 years after buying the property, the tax authorities will ask you to pay the additional transfer tax (i.e. tax due on the initial exempted amount). On top of this, they will ask you to pay the same amount a second time, as a penalty. However, if you can demonstrate ‘force majeure’ you only need to pay the transfer tax and not the penalty.
On the other hand, if you do not stay at the same property for a minimum of 5 years, you will only be asked to pay the additional transfer tax. The authorities will not impose a penalty in this case. If you can demonstrate ‘force majeure’, the additional transfer tax can be waived as well.
This difference in treatment was recently challenged before the tax court in Brussels who had to present the matter to the Belgian Constitutional Court (Decision Nr. 118/2022, 29 September 2022). The latter is usually asked to rule in case of an alleged violation of the principle of equality, which is laid down in our constitution.
In the case at hand, a taxpayer had purchased a residential property in Brussels late 2009 under the ‘abattement’ regime. While she did not establish her main residence at the new property until early 2012, she did reside at the property for a minimum of 5 years after that. In other words, the initial registration requirement was not met, but the minimum duration afterwards was.
As a result, the tax authorities asked to pay both the additional transfer tax and the penalty. As the taxpayer could demonstrate ‘force majeure’, the tax office waived the latter, but not the additional transfer tax. This difference in treatment was brought before the Constitutional Court.
The court ruled that the aforementioned two categories of non-compliant taxpayers are in a ‘sufficiently comparable situation’, as they both need to comply with a legal condition within a certain timeframe. The court also stated that a case of ‘force majeure’ can allow the authorities to be more flexible in respect to the strictness of the law. But while doing so, they always need to observe the principle of equality.
In view of the initial reasoning behind the ‘abattement’ regime (i.e. to allow young people with a limited budget to acquire a property in Brussels), the court concluded that the principle of equality is indeed violated. There is no reasonable justification for this difference in treatment. The outcome has disproportionate consequences for the buyer who was not able to anticipate the additional tax amount in their budget for the acquisition and, where relevant, renovation of the property concerned.
The court thus ruled that the sanction mechanism as included in the Brussels’ transfer tax discount regime is in violation of our Constitution. The Brussels legislator will now need to amend the above and make sure it is compliant.
We have learned in the meantime that the Brussels ‘abattement’ will undergo several changes with effect as from 1 April 2023 onwards, and will hopefully also remedy the aforementioned violation.