The Brussels-Capital Region has reviewed the taxation of life insurance contracts in the event of death. The tax rules in this area are now identical in Brussels, Flanders and Wallonia.
Life insurance is a savings or investment product embedded in an insurance contract. This type of policy is interesting for the tax advantages it provides, namely: absence of withholding tax on income from branch 23 investment insurance and on income from insurance from branch 21 savings if the policy does not cover more than eight years.
Life insurance is a savings or investment product embedded in an insurance contract. This type of policy is interesting for the tax advantages it provides, namely: absence of withholding tax on income from branch 23 investment insurance and on income from insurance from branch 21 savings if the policy does not cover more than eight years. “Life insurance is a tax-efficient way to build a supplementary pension, explains Tom Huyghebaert, tax and family planning expert at Lemon Consult. This type of policy is also interesting as a control tool in connection with estate planning. for the benefit of the next generation. It makes it possible at the time of death to transfer a portion of one’s assets to the beneficiaries named in the contract.” “For example, you can designate your grandchildren as beneficiaries to plan your inheritance. You thus skip a generation and distribute your assets between several heirs, while benefiting from the most advantageous tax classes of inheritance tax in Brussels and in Wallonia and inheritance tax in Flanders (Flanders has changed the name “successierechten”, inheritance tax, to “erfbelasting”, inheritance tax…, but basically it is the same, editor’s note). “There are many possibilities. In the case of an ABC policy, for example, the policyholder (A) enters into an insurance contract for the life of an insured (B) for the benefit of one or more third-party beneficiaries (C). This construction is useful for grandparents who are concerned about preventing their grandchildren from coming into possession of a large sum at a young age. Illustration with a specific case. Alexander, 70 (A), takes out a policy for his daughter Belinda, 40 (B), in favor of his son Casper, 10 (C). This construction allows Alexander to pass on some capital to his grandson Casper, but the latter will only receive it upon the death of Belinda, Alexander’s daughter (whether or not he was still alive at the time of his disappearance). Alexander can also attach additional conditions to the policy and stipulate, for example, that Casper only receives the capital at a certain age – e.g. 21 – regardless of whether Belinda is dead or not. As a starting point, the capital in a life insurance policy paid out after death is taxed. In Flanders it concerns inheritance tax; in Brussels and Wallonia inheritance tax. It’s almost the same, except the tax rates diverge. They depend, among other things, on the size of the bequeathed capital, including the payments, as well as the degree of kinship between the beneficiary and the deceased. “In some cases, the tax authorities used to require the beneficiaries to pay inheritance tax or inheritance tax, even before the payment of the capital, which sometimes gave rise to problematic financial situations”, explains Tom Huyghebaert. Let’s take the example above. Until recently, the situation was as follows in Brussels: If Alexander died before Casper’s 21st birthday, his grandson was directly liable for inheritance tax on the insured capital, even if he had not yet received the capital. Casper therefore had to immediately pay out an amount (sometimes considerable) when he had not yet received anything. Since August 11, 2022, this is no longer the case in any of the three regions. From now on, the insurance agreement is no longer subject to inheritance tax in Brussels at the time of Alexandre’s death, but at the time of the actual payment of the insurance amount, in principle when Casper turns 21, or earlier if his mother Belinda dies. before his 21st birthday. By making the taxation coincide with the actual payment of the capital, Brussels aligns itself with Flanders and Wallonia, where this was already the case. The other change recently made in Brussels concerns the taxation of life insurance donations. Illustration: Some years ago, Alexandre (A) invested part of his savings in investment insurance in branch 23. When concluding the contract (by which he is insured), he named his daughter Belinda (B) as beneficiary in the event of death. To avoid inheritance tax or inheritance tax at the time of his death, Alexander decides to donate this life insurance policy to Belinda. She thus becomes the policyholder and beneficiary of the contract, while Alexandre remains insured. “The donation must be registered by a notary. The donation rights must be paid immediately, but they are lower than inheritance tax or inheritance rights”, explains Tom Huyghebaert. Straight line gift tax is 3% in Brussels and Flanders and 3.3% in Wallonia. Assume that the value of the life insurance contract is estimated at 100,000 euros at the time of the donation. Normally, the insured capital continues to grow. If it reaches €110,000 on Alexander’s death, in accordance with the old rules, Belinda would not have to pay inheritance tax on the capital gain (€10,000) in Brussels. Since the new rules of 11 August 2022, this will be the case in Brussels as in Flanders and Wallonia.