Are you entitled to the Brussels ‘abattement’ if you own property abroad ?
In 2017, the income tax benefit for the home mortgage loan (‘housing bonus’) in the Brussels-Capital Region was abolished and replaced by an increased transfer tax exemption.
When you buy a property in Belgium, you are normally required to pay a transfer (registration) tax on the purchase price due the passing of the ownership title from the seller to the buyer. This tax is due in addition to any other purchase costs (e.g. notary fees). While there are significant regional differences, in Brussels the standard transfer tax rate is currently 12.5%.
To reduce the financial impact of buying a dwelling, first-time homeowners can be eligible for a transfer tax reduction, the so-called ‘abattement’.
The abattement already existed in the Brussels-Capital Region before 2017, but with the legislative changes, it was increased from €60,000.00 to €175.000,00. As a result, no transfer taxes are due below these thresholds when purchasing your first property. In other words, a tax saving of max. €21,875.00 (€175,000.00 x 12.5%) is granted since 2017.
The conditions to be able to benefit from this are the following:
- The buyer should be a private individual;
- The buyer acquires full ownership of the property (no usufruct, bare ownership, etc.);
- It is applies to both old and new properties (the latter will be often subject to VAT instead);
- The property is located in one of the 19 Brussels municipalities;
- It is used or intended to be used (in whole or in part) for residential purposes;
- The total acquisition price does not exceed €500,000;
- Acquiring land is also eligible, but the tax reduction is only 50% in that case;
- The buyer should register at the property within 2 years and remain registered for 5 years;
- The buyer may not have (full/partial) ownership of another property used for housing.
The latter condition often creates confusion with foreign homeowners. Can the abattement be requested in case you already own property abroad at the time of purchase of the Belgian one?
The Belgian tax authorities are obviously of the opinion that the taxpayer cannot be the owner of another property, not only in Belgium, but also abroad (Administrative Circular Nr. 4/2003 of 24 February 2003). This is initially based on a reply of the Brussels Finance Minister of 6 January 2003 in the context of not allowing EU-staff members who keep their main residence abroad whole working in Brussels, to also benefit from this benefit. The abattement was put in place to create some financial breathing room for young families buying their first home.
While this is a very noble interpretation by the tax authorities, this administrative viewpoint does not have any legal basis and is even in contradiction with it (Article 46bis of the Brussels Transfer Tax Code – BTTC). This article does not explicitly mention ‘properties in Belgium and abroad’ and can therefore not be considered a legal requirement. The application of Article 46bis BTTC should therefore only be looked at from a Belgian perspective.
The owners also need to register their main residence at the new property within two years as from the date of registration of the purchase. This period can be extended to three years for land, houses and apartments under construction or ‘purchased on plan’.
The owner must, for an uninterrupted period of 5 years, keep their main residence in the same property and this from the date of entry in the population register. In practice, it happens often that people decide to move abroad for personal or business reasons and in that case no longer meet the above requirement. Depending on the circumstances, this can sometimes be considered as a situation of ‘force majeure’ (unforeseeable circumstances beyond your control), but this will largely depend on the tax authorities’ view on the matter.
Finally, it is important to know that if the authorities would investigate the situation and successfully demonstrate that the abattement was wrongfully requested or the conditions no longer met; an additional transfer tax may be levied. Their additional claim would correspond to the tax due on the initial exempted amount. Furthermore, the same amount will be due on top of that as a penalty. Only if the taxpayer can demonstrate there was no fraudulent intent, the tax office might reduce or waive the penalty.