Anyone familiar with inheritance and gift tax will be familiar with this adage. The Court of Appeal in The Hague confirmed in a recent ruling that it is still relevant today.
Notional acquisition
We are talking here about the complex issues surrounding deemed acquisitions. But if we outline the case, the practical significance quickly becomes clear. It concerns a daughter who lives with her mother in a property owned by the mother. At the end of 2014, the mother sells the property to her daughter, but they both continue to live there.
When determining the sale price, the mother’s right of use and occupation is taken into account. This results in a lower purchase price: the property has a WOZ value of €204,000; the purchase price is €155,000.
Incidentally, the daughter does not pay this amount. The full purchase price is waived. This gift is exempt up to an amount of €100,000 (the now famous “jubelton“) and the daughter pays gift tax on €55,000.
Pleasure
In 2015, my mother passed away and an inheritance tax return had to be filed. The property no longer belonged to my mother and was therefore not included in the return. This is the correct procedure.
But this is where Section 10 of the Inheritance Tax Act comes into play. That provision stipulates that, in short, a deemed acquisition takes place if the deceased had the use of the property until her death.
And, in the context of inheritance tax, the term “enjoyment” is often applied quite readily. The daughter argues that the deed of transfer for the property does not indicate that a right of usufruct has been established. Nor is this evident from any other source. The daughter was successful at the District Court, but the Court of Appeal ruled that the District Court had interpreted the term “enjoyment” too narrowly: ‘a little enjoyment is still enjoyment’. And the mother continued to live in the property.
Prevention of pleasure
To avoid any question of undue advantage, the mother should have paid her daughter compensation amounting to at least 6% of the value of the property. For inheritance tax purposes, that value is equated with the WOZ value. Based on the WOZ value mentioned above, this would amount to an annual payment (rent) of no less than €12,240.
Incidentally, the purchase price owed by the daughter should not have been €155,000, but €204,000. After all, there is generally no question of pressure to sell in the case of a commercial lease.