In the tax plans for 2018 It contains provisions designed to make tax planning (particularly estate planning) through marriage more difficult.
Marriage
Marriage (and, of course, the same applies to civil partnerships) is not just incredibly romantic. As soon as you sign the marriage certificate, the legal consequences of marriage come into effect. With regard to your assets, these consequences are:
- if you marry under the community of property regime: this means that your assets and those of your partner are pooled;
- If you marry under a prenuptial agreement: the consequences as agreed between you and your partner (set out in a notarial deed).
If you get married in 2017, the general rule is that a community of property is established. If you do not want this, you must have a prenuptial agreement drawn up by a solicitor before your wedding.
You may also switch from the community of property regime to a prenuptial agreement – and vice versa – during your marriage.
If you get married after 31 December 2017, then the general rule that a limited community of property is established. If you do not wish this, you must have the notary record that your marriage establishes a full community of property.
And in 2018 and beyond, whilst your marriage is still going strong, you’re free to switch regimes.
Fifty-fifty at most
If you combine your assets and those of your partner under the community of property regime, no inheritance or gift tax is payable. However, this must not result in one partner having more than an equal share. This will be explicitly regulated by law with effect from 2018.
A example (1), as set out in the explanatory notes to the bill. You get married in 2018. Your assets amount to 320, and your partner’s to 10. You draw up a prenuptial agreement under which you contribute your assets to a community of property. You have equal rights within that community.
In that case, you and your partner are each entitled to 50% of 330 = 165. You will be worse off. Half of your assets (50% of 320 = 160) will become your partner’s, and half of their assets (50% of 10 = 5) will become yours. Although your partner gains 155, no gift tax is payable.
A example (2) which is where things go wrong. You get married again, but this time your assets amount to 1,000. Your partner’s assets amount to 200. In the prenuptial agreement, you stipulate that you are entitled to 30% and your partner to 70%.
Your total assets amount to 1,200. Your partner is entitled to 70% of 1,200 = 840. That is more than half of your joint assets (50% of 1,200 = 600). Your partner will therefore be liable for gift tax on 840 – 600 = 240 upon entering into marriage.
These examples relate to getting married. Naturally, tax planning also plays a role during the marriage and at its conclusion (divorce or death).
Cohabitants
The new rules will also apply to unmarried cohabiting partners. This applies only to cohabiting partners who have entered into a notarised cohabitation agreement setting out a mutual duty of care.
Fake marriage
A sham marriage is a marriage (or registered partnership) entered into solely for tax benefits. In 2013, the Supreme Court set aside a registered partnership that had lasted for just one day. The legislature has chosen not to stipulate a minimum duration for a marriage recognised for tax purposes.
So when is a marriage considered a sham for tax purposes? Possible indications of this include:
- the duration of the marriage;
- a significant difference in power;
- a family bond;
- a big age difference.
In the case of a sham marriage, the fifty-fifty rule does not apply; instead, any transfer of assets between the partners is subject to inheritance or gift tax.
More complex
Tax planning through marriage is, of course, considerably more complex than this article suggests. The explanatory notes on the proposed legislative amendment contain no fewer than 20 examples. Would you like to know more about the options and the implications of the proposed changes? The consultants The team at VWGNijhof are here to help you.
The bills forming part of the 2018 tax plans are currently before the House of Representatives. The intended date of entry into force is 1 January 2018. It is therefore not yet certain that the new rules will be introduced in the manner described here.