New registration fees rule: better to buy now or wait a while?
New registration fees rule: better to buy now or wait a while?
The Flemish legislator is planning a drastic amendment for natural persons wishing to purchase a building intended as a family home.
Notwithstanding the general transfer tax of 10%, that shall remain as it is, the new regulation related to the purchase of a family home means that a charge of 7% will always be applied, with an extra discount for a modest family home.
Currently, the rule to determine the level of transfer tax, otherwise known as registration fees, is based on the building's rateable value or cadastral income.
This is colloquially known as "het groot beschrijf" (standard registration fees) and "het klein beschrijf" (reduced registration fees).
Furthermore, as the potential buyer, you will also have heard about "abattementen" (partial registration fee exemptions) and the "portability of registration fees".
The terms may sound familiar, but what do they mean precisely?
Cadastral income (CI)
The cadastral income is a fictive income that is aligned with the average annual rent on the building. The fact that cadastral income has not been updated for decades means it no longer reflects the reality. This means that a 5-year-old apartment may have a higher CI than an old town house, even if this town house has recently been restored.
Reduced and standard registration fees
For buildings with a low CI (maximum 745 EURO) registration fees are levied at a favourable rate of 5%, the reduced registration fees. All other buildings are taxed at the general transfer tax of 10%, the standard registration fee. It is therefore quite possible that someone buying an apartment must pay transfer tax at a rate of 10% while someone buying a town house pays just 5%.
The CI that is considered in awarding the lower rate, increases according to the number of dependent children the buyer has (up to a maximum of 1,045 EURO for 7 or more children). Equally, there is consideration of all real estate owned by the buyer in Belgium. This, however, excludes any real estate that the buyer or his spouse has received in bare ownership from an ascending blood relation, e.g. in the case of inheritance. This exclusion also applies to real estate received in outright ownership from an ascending blood relation if the CI of this real estate is a very modest maximum of 186.25 EURO.
The regulation is complex and the same building may be classed as "reduced registration fees" for one buyer (e.g. with a large family) and as "standard registration fees" for another.
"Abattementen" (Partial registration fee exemptions)
"Abattementen" are exemptions on which the buyer is not required to pay transfer taxes.
A buyer who buys real estate with the aim of living there and who makes the building his main residence within a period of 2 years will not be required to pay transfer tax on the first instalment of 15,000 EURO. In order to benefit from this allowance he may not own any other real estate intended for residence.
If the buyer takes out a mortgage loan to purchase this building he can also benefit from the additional reduction. This amounts to an additional sum of 10,000 EURO if the building falls within the transfer tax of 10% (standard registration fees) and 20,000 EURO if it falls within the transfer tax of 5% (reduced registration fees).
Finally there is also the renovation allowance whereby, under strict terms, it is possible to qualify for an exemption on the first sum of 30,000 EURO. This partial registration fee exemption can be cumulated with the partial registration fee exemption and the additional reduction.
Portable registration fees
The "portability of the registration fees" implies that buyers, who have already bought a building in the past and who buy a new building, may deduct the transfer tax paid on the previous purchase from the amount of transfer tax owed on the new purchase.
The most important conditions are that the previous building is sold and that the new building is bought within 2 years of the last purchase.
The portability is limited to a sum of 12,500 EURO.
The intended Flemish regulation
In the proposed decree, from a Flemish perspective, this entire regulation will be kicked out and replaced with a much simpler regulation.
The only exception is that the principle of portability will continue to exist. The sum of 12,500 EURO will also be index linked.
In the proposed decree, the transfer tax applying to buyers of a family home who make it their main residence will be set at 7%. The buyer may not own any other real estate unless he commits to selling this other real estate within the year and demonstrates that this sale and new purchase are connected.
The buyer that carries out extensive energy-related renovation to the property within 5 years after purchasing it shall pay a transfer tax of only 6%. Extensive energy-related renovation implies the complete replacement of heating, cooling and ventilation systems and the insulation of at least 75% of the outer shell.
When purchasing a modest family home, an additional discount is applied, amounting to 5,600 EURO (at the rate of 7%) or 4,800 EURO (at the rate of 6%). A modest family home is a building with a purchase price up to a maximum of 200,000 EURO. For city centres and the Flemish periphery this sum shall be increased to 220,000 EURO. This discount is equivalent to an exemption from transfer taxes on the initial sum of 80,000 EURO. These amounts are not index linked.
If you are considering buying a classified building which you plan to turn into a family home, the transfer tax will be reduced from 7% to 1% provided that you invest the difference of 6% within 5 years in control measures, activities or services that are required to maintain or upgrade the protected monument.
We can conclude that, as a rule of thumb, for buildings which for the buyer fall under the "reduced registration fees" it is recommended that these are purchased under the existing law and for buildings which fall under the "standard registration fees" it is worth waiting until the new legislation is enforced.
We do stress that the rate of 7% applies exclusively when it is the only family home.
Under the current legislation, building plots can also be considered for the favourable rate of 5%. In that case the total CI of the building plot may not exceed 323 EURO, but this is often the case. Purchasing a building plot under the new regulation will automatically incur the general transfer tax of 10%.
The Flemish government hopes to enforce the new regulation before the summer.
It is therefore also important to note that the date of the private deed, "the preliminary contract", will determine which rule shall be applied.
But what if you find your dream home today and wish to wait until the new regulation applies, but do not want to risk another buyer stealing the building from under your nose...?
Monard Law would be delighted to help you find a solution.