Recently one of our readers contacted us regarding the so-called «abattement» or tax allowance that taxpayers can benefit from when buying a house in Brussels. He wanted to know what the legal conditions are to be able to benefit from it. We hereafter give you an overview of our most important findings.

1.        What is the «abattement» ?

When purchasing a house in Belgium, the buyer is normally required to pay a transfer tax on the purchase price due the passing of title to property from the seller to the buyer. In the Flemish Region, real estate can be registered at a flat rate of 10 pct., while the tax rate amounts to 12.5 pct. in the Brussels-Capital and in the Walloon Region (Article 44 of the Belgian Transfer Tax Code – BTTC).

We discussed this in one of our Tax Topics last year.

However under certain conditions, in the Flemish and in the Brussels-Capital Region part of the purchase price is exempt from this transfer tax. In Flanders, the first 12,500 € (normally taxed at 10 pct.) is exempt from taxation. In Brussels this exemption even amounts to the first 60,000 € (normally taxed at 12.5 pct.) of the total purchase price (Article 46bis BTTC).

For obvious reasons we will hereafter only focus on the Brussels’ «abattement». The conditions for the Flemish tax allowance are similar, but not exactly the same. Feel free to email us if you would consider to buy a dwelling in the Flemish Region and would require additional information in this matter.

2.        What is the actual benefit ?

The general rule is that the first 60,000 € of the purchase price will be exempt from the 12.5 pct. transfer tax. The actual benefit will be 7,500 € (i.e. 60,000 € x 12.5 pct.).

For certain degraded areas in Brussels, there are special development plans under which an additional 15,000 € of the purchase price can be exempted from the transfer tax (i.e. an additional 1,275 € or 9,375 € in total: 75,000 € x 12.5 pct.)(Article 46bis, 4° BTTC).

If, for some reason, the total purchase price would be smaller than 60,000 or 75,000 €, no tax credit or refund is applicable. The transfer tax due will then be simply limited to the fixed transfer tax rate of 25 € (Article 167 juncto Article 11 BTTC).

3.        Who can benefit from the «abattement» ?

Only private individuals who buy property in the Brussels-Capital Region are entitled to benefit from the Brussels’ «abattement». The nationality of the individual is not relevant. So it can be foreigners as well.

The dwelling can be bought by one or several owners, but it is always required that it are private individuals. Companies or legal entities cannot benefit from this tax allowance (Article 46bis, 1° and 2° BTTC).

4.        For what kind of property ?

The «abattement» is granted for the purchase of real estate property used or intended for habitation. Evidently, for the Brussels’ tax allowance, it should be located in the Brussels-Capital Region. Mainly houses and apartments are envisaged that are immediately (or after the necessary repairs) ready to be used as a dwelling (e.g. an old warehouse that is to be transferred to a loft).

It is not required that the property exclusively serves a habitation purpose. The taxpayer who buys a shop on top of which a small apartment is located, is also entitled to the «abattement». Article 46bis, 5° BTTC explicitly excludes all unbuilt land (this is, for example, different for the Flemish Region). Administrative Circular Nr. 11/2004 of 16 August 2004 provides a schematic overview of the different kinds of property for which the «abattement» can be claimed.

The benefit is only applicable for the dwelling that serves as the taxpayers’ main residence. It is the location where he actually and mainly resides. The registration in the local population register is an important indication, but is as such not sufficient. The actual use of the dwelling is the crucial element.

The taxpayer has a period of 2 years as from the date of the purchase agreement to locate his main residence there (i.e. register in the local population register). Under certain conditions, this period can be extended to 3 years. There is also a legal requirement regarding the length of the period for how long the main residence should remain located there. In principle, this is a five year period as from the registration in the local population register (Article 46bis, §6, 2° c) BTTC).

5.        For which kind of transfers ?

Normally only in case of the sale of property.

The «abattement» is only granted in case of a sale of property (i.e. transfer of full ownership). As a result, the tax allowance is not applicable in case of transfer of naked property or usufruct, exchange of real estate, the acquisition of property as a result of the liquidation of a company and so on. Administrative Circular Nr. 4/2003 of 24 February 2003 explicitly conforms that only the sale of property will make the «abattement» applicable.

If the taxpayer is already the full owner of another residence that serves as his main dwelling, the «abattement» cannot be granted a second time (Article 46bis, §6, 1° BTTC). If the property is bought by several individuals, this condition should be met by each of them individually and jointly. In the situation where they would already be usufructuary or bare owner of a dwelling, the «abattement» can nevertheless still be granted.

Where a first residence is bought by several individuals, the benefit of the transfer tax allowance will be pro rata divided among them according to their part in the property (1/2 – 1/2; 1/3 – 2/3 or accordingly). It is not relevant what the legal relationship is between these individuals (e.g. married, legally living together, roommates, etc.)

6.        Does VAT exclude the benefit of the «abattement» ?

Yes, it does.

According to Belgian VAT legislation, the supply of immovable property (i.e. land as well as buildings) is in principle exempt from VAT. The transfer of real estate in Belgium is normally subject to the transfer tax (cf. Tax Topic of 29 September 2009 and Tax Topic of 2 March 2010).

When a registration tax is levied, the transfer cannot be subject simultaneously to VAT (Article 159, 8° BTTC). The supply is thus VAT exempt, except for the supply of a building (or parts of it) that is considered to be «new» under the terms of the Belgian VAT Code (Article 8, §1 and 44, §3, 1° a) of the Belgian VAT Code). The seller has the choice to subject such a supply to VAT (of 21 pct.) and not to the transfer tax.

In the event that VAT is applicable on the sale of new property, no transfer tax will be levied and thus no exemption from it can be granted.

7.        What is the moment of appreciation of this ownership ?

Whether or not the taxpayer is already the owner of a dwelling where his main residence is located, is appreciated on the date of the deed of purchase before the notary or when the preliminary sale/purchase agreement is signed (the so-called «compromis»). If the taxpayer still owns another house at the date of the deed of purchase, normally the «abattement» cannot be granted.

In the Brussels-Capital Region, this problem can be solved with the so-called «abattement» a posteriori. With this procedure you can claim the transfer tax allowance at a later date (i.e. at the moment in which the previous house was sold and the main residence is now located at the newly purchased property).

The taxpayer will have to address the Tax Administration himself by means of a motivated request to get a refund of the paid transfer tax and this within a two year period as from the registration of the purchase agreement (Article 212bis BTTC).

8.        No «abattement» when you already own a house abroad ?

According to the Belgian Tax Administration you are not allowed to have another house in Belgium or even abroad.

We just stated that if the taxpayer is already the full owner of another residence that serves as his main dwelling, the «abattement» cannot be granted a second time (Article 46bis, §6, 1° BTTC). The Belgian Tax Administration is of the opinion that this does not only apply to property in Belgium, but also to property located abroad (Administrative Circular Nr. 4/2003 of 24 February 2003).

As a result, many expatriates who already own a house in another country, will lose the benefit of the «abattement» if they come to live in Belgium temporarily and not rent but decide to buy a house here. To our opinion, this administrative point of view does not correspond with what is laid out in Article 46bis BTTC. This article does not explicitly mention “in Belgium and abroad” and thus cannot be considered to be a legal requirement.

The Belgian legal doctrine is of the same opinion as we are.

Being the owner of a house abroad should not result in losing the benefit of the «abattement» when purchasing a first dwelling in Belgium. The application of Article 46bis BTTC should only be looked at from a Belgian perspective (E. SPRUYT, “Deel VII: Gunstregimes in het registratierecht bij aankoop van onroerend goed: een stand van zaken”, in L. MAES e.a. (eds.), Fiscaal Praktijkboek 2009-2010 – Indirecte belastingen, Kluwer, Mechelen, 2009, p. 270 and F. WERDEFROY, Registratierechten 2008-2009, Deel III, Kluwer, Mechelen, 2009, p. 1943, nr. III/117).

9.        How the «abattement» should be requested ?

There is a difference between the request for an immediate «abattement» and the «abattement» a posteriori.

A. For the normal procedure (the immediate «abattement»), the official deed of purchase agreement signed before the notary (or the preliminary sale agreement, if there is no intervention of a notary) should mention 3 elements:

(1) «None of the purchasers is, at the date of the purchase agreement, full owner of another property in whole or in part, intended to serve as their main residence; if the purchase is made by several people, they may not separately or jointly be the full owner of another property wholly or partly intended to serve as their main residence»;

(2) «The purchasers are committed to establish their main residence at the location of the purchased property within two (or three) years after the date of the deed of purchase»;

(3) «The purchasers are committed to keep their main residence at the location of the purchased property for a period of no less than five years as from the date on which the main residence was located there».

For the Flemish version it is also required that the deed of purchase stipulates that «The purchasers request the application of Article 46bis of the Transfer Tax Code». For the Brussels’ «abattement» this is not required.

B. In the event that the «abattement» is requested a posteriori, there are different conditions that should be fulfilled. The formal request for a refund should be send to the Tax Administration where the original deed was registered (Article 217 BTTC) and should mention the following elements (Article 212bis, §2 BTTC):

(1) The overview of the registration details of the real estate property for which the «abattement» is requested a posteriori;

(2) The cadastral details of all real estate property that prevented the purchasers from immediately requesting the «abattement»;

(3) The date on which the deed of sale (not purchase) of the property that initially prevented the purchasers from immediately requesting the «abattement», was registered;

(4) «The purchasers are committed to establish their main residence at the location of the purchased property within two (or three) years after the date of the deed of purchase»;

(5) «The purchasers are committed to keep their main residence at the location of the purchased property for a period of no less than five years as from the date on which the main residence was located there».

The request for a refund should be made within 6 months as from the date of registration of the original deed of purchase for which the transfer tax allowance is requested (Article 212ter BTTC).

10.      Is there a penalty if the «abattement» is requested unjustly ?

Yes, the taxpayer can be fined.

If the Belgian Tax Administration would investigate the taxpayers’ situation and would discover that the «abattement» was requested wrongfully (e.g. already being the full owner of another house), an additional transfer tax (according to the tax exemption granted under the «abattement») will be levied. This will normally amount to the 7,500 € initially exempted.

Furthermore, the same amount will be due by way of a penalty. So, if the tax benefit of the «abattement» would be 7,500 €, an additional 7,500 € will be due as a penalty. If you have a good reason for it, you can always request the Tax Administration to cancel the penalty. If a purchase is made by several individuals and one of them made a false statement, the other owners will jointly be held responsible for the transfer tax and the penalty due. It is therefore advisable to check eachother's intentions.

In the event that the taxpayer would, for example, not succeed in establishing his main residence at the location of the newly bought property, such failure could be – in some situations – qualified as «force majeure». In that case only the transfer tax, but not the penalty will be levied.