Reduced Flemish inheritance taxes on friends inheritance

Mid 2021, Flanders introduced the friends inheritance. This technique allows you to transfer a part of your inheritance to non-family members or distant relatives without the tax authorities taking the biggest part.

Bear in mind the legal heirs

When you draft a will because you want to favour certain persons, you should primarily take into account the legal thresholds on disinheriting your closest relatives – the so-called legal heirs. In case you have no legal heirs, or when you remain within the boundaries, you almost determine what you want in your will.

The rate of the inheritance tax depends on:

the amount; and

the family relationship.

Partners and children

Between spouses and with respect to children/grandchildren and parents/grandparents, the rates are the lowest: from 3% up to 27%, but a number of other rules apply mitigating the inheritance tax.

Brothers and sisters

Between brothers and sisters, the rates are as follows:

as from 0,01 up to and including 35.000: 25%;

as from 35.000,01 up to and including 75.000: 30%; and

as from 75.000,01: 55%.

These rates are applicable on the net acquisition of every brother or sister separately.
Sister A receives 30.000 and sister B too. In both cases the rate is 25%.
So A and B pay each 7.500 inheritance tax (so together 15.000).

Other relatives

In case of gifts to third parties and relatives, further away than brothers and sisters, the rates are the following:

as from 0,01 up to and including 35.000: 25%;

as from 35.000,01 up to and including 75.000: 45%; and

as from 75.000,01: 55%.

If you don’t see the difference, take a look at the rate in the middle. But there is also another difference: these rates apply to the total net acquisition of all heirs.

Nephew C and nephew D both receive 30.000
The inheritance tax amounts to:
• 35.000 at 25% = 8.750; and
• 25.000 at 45% = 11.250
Total inheritance tax on 60.000 = 20.000
Since C and D both receive the same, they will each pay 10.000 taxes.

Friends inheritance

The friends inheritance is only possible for deceases as from 1 July 2021.
It is only possible for gifts to ‘friends and distant relatives’ and is only granted if the testator has in a will assigned one or more private individuals which can apply for the reduction.
‘Friends and distance relatives’ mean brothers and sisters and further away, and third parties.
You should also unambiguously and precisely indicate to whom you make your friends inheritance. These can be several persons at the same time, or just one single person.

Reduction for one friend

In fact the result of a friends inheritance is a reduced rate of 3% on maximum 15.000.

You foresee a gift of 15.000 to a friend.
Without the friends inheritance the inheritance tax amounts to 3.750 (15.000 x 25%)
Thanks to the friends inheritance your friend will pay 450 inheritance tax (15.000 x 3%).

Imagine that you give 25.000 to that friend, he will still pay 450 on the first 15.000. On the remaining 10.000 the standard rates apply (10.000 x 25% = 2.500).

The saving can never be higher than 3.300.

In case the inherited amount is less than 15.000, the reduction is surely also lower.

Reduction for several friends

In case you have indicated several persons, the reduction of 3% applies to maximum 15.000, for everyone together.

Example 1
Let’s take the above example of sisters A and B
Together they paid 15.000
If they are indicated in the will for a friends inheritance, they will together receive a reduction of 3.300. The total tax then amounts to 11.700 (5.850 per sister).

Example 2
The same story for our nephews C and D. Together they owed 20.000
They also will receive a 3.300 reduction in case of a friends heritance; remains 16.7000 or 8.350 per nephew.

Be precise

You should indicate in the will who will benefit from the friends inheritance. There should be not authentic will, also your own written will qualify.

You should clearly indicated that this or that person will receive a gift from you which you consider as a friends inheritance. The tax authorities will not automatically apply the reduction if you foresee a gift to a friend or brother or sister!

In your will you can even indicate that you want to provide one friend with a friends inheritance and another one not.

Let’s again take the nephews C and D. In case you only give a friends inheritance to nephew C of 30.000 and a normal gift of 30.000 to D, the inheritance tax is calculated as follows. The total inheritance tax amounts to 20.000, of which 10.000 for each nephew. But nephew C obtains a reduction of 3.300 (and it the end pays 6.700), while D should pay the full amount of 10.000.

So, there are a number of possibilities. Ascertain yourself of the possibilities, since a small error in the wording may cost you (or better: your heirs) 3.300.

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