'Own homes' have been a regional authority matter, since 2014. Even then, it was predicted that this would result in serious fragmentation and complication of the fiscal benefits for own homes. Differences started to occur between the various Regions in 2015, but since financial year 2016, it's safe to say that there are three completely different systems in home-owner taxes. Below, we offer a brief outline of the regional and fiscal benefits for home loans. You can click to see the outline in a table. For the sake of completeness, we conclude with an outline of the federal benefits for home loans.
Flanders - introduction of the 'integrated Flemish house bonus'
In the case of loans entered into before 2016, the Flemish house bonus (the so-called ‘woonbonus’) is only allocated for the home which qualifies, on 31 December of the loan year, as 'the only own home'. The precondition of 'only home' no longer applies to loans entered into from 2016 on. This resulted in no fewer than three categories in the house bonus in 2016:
- Loan entered into between 2005 and 2015: the old Flemish house bonus. That bonus amounts to a maximum of 3,120 Euros (a basic sum of 2,280 Euros plus, throughout the first ten loan years: 760 Euros + 80 Euros if there are three dependent children on 31 December of the loan year). The additional baskets of 760 Euros and 80 Euros are allocated as long as the home remains the only home. The house bonus provides tax relief at what is known as the marginal tax rate. That rate is dependent on the borrower's income, and amounts to a minimum of 30% and a maximum of 50%. Therefore, the tax saving comes to a maximum of 1,560 Euros per borrower (3,120 Euros x 50%);
- Loan entered into in 2015: the first generation of the new Flemish house bonus. That reduced bonus amounts to a maximum of 2,360 Euros (a basic sum of 1,520 Euros plus, throughout the first ten loan years: 760 Euros, and if there are three dependent children, another 80 Euros). Here too, the additional baskets of 760 Euros and 80 Euros are allocated only as long as the home remains the only home. The house bonus provides tax relief of 40%. Therefore, the tax saving comes to a maximum of 944 Euros per borrower (2,360 Euros x 40%);
- Loan entered into in 2016: the second generation of the new Flemish house bonus. Both the amount and the benefit of the house bonus remain unchanged; they are identical to those entitled to with loans entered into in 2015. However, the extent to which the house bonus is applied has been expanded to include all own homes, whether first, second or third, as long as the borrower occupies the home during the payment of loan expenditure. The reason for this was to prevent anyone in the Flemish Region receiving more tax benefits for a second home than for the first home. To ensure that this unintentional effect of the Flemish home-owner tax could no longer occur, two additional measures were taken:
- Flemish tax relief on long-term saving is not allocated for loans entered into from 2016 on. Flemish tax relief on long-term saving applies only to loans (and life insurance policies) entered into no later than 31 December 2015, so therefore not to new loans.
- Neither is the ordinary Flemish tax relief of 40% allocated for loans entered into from 2016 on. In this, Flanders is following the lead of the other Regions, which abolished this from 2015.
Moreover, there is still a total ban on cumulation of the second category of house bonus (entered into from 2016 on) with other Flemish house bonuses. As soon as a home-owner claims the house bonus for a new loan, entered into from 2016 on, the choice is definite, and any Flemish benefit for old loans, entered into before 2016, are relinquished. Neither must the choice be made immediately in the same year as the new loan being entered into. This means that if the new loan, entered into in 2016, is not claimed for until the tax return of 2019, the tax relief on the old loan, from before 2016, can be received right up to 2019.
Another change introduced in Flanders is a new legal fiction in mortgage transfer: if the old home is sold after 2015, the loan is deemed to be entered into for the new home, to which the mortgage is transferred, regardless of the date of the (already existing) loan. This fiction was introduced to prevent a home-owner being left, after the mortgage transfer, with the less favourable federal long-term saving scheme instead of the more favourable (old) Flemish house bonus. In order to be able to profit from this new legal fiction, the following preconditions must be met:
- The 'old' home, for which the original loan was entered into, must have been disposed of to acquire another home (causal relationship);
- The 'old' home must have qualified as 'own home' before the other home can become the 'own home'. The old home is not required to remain the own home right up to the day that the newly acquired home qualifies as 'own home'.
Click here for a list of the Flemish tax benefits.
Brussels Capital Region - a year of 'quiet' before the big turnaround
The existing tax benefits hold true for the income year 2016. The big turnaround only counts for loans entered into from 1 January 2017, because from then on, the regional tax benefits for home loans lapse completely. They will be replaced by an increased compensation in the registration dues owed, on purchase. The compensation, being the part of the purchase price on which no registration dues are charged, will be increased from 60,000 or 70,000 Euros to 175,000 Euros.
For the maximum baskets of the various regional tax benefits, the Brussels Capital Region is the only one to continue to index the amounts:
- House bonus: tax relief of 45%, for a maximum basket of 2,300 Euros, to be increased during the first 10 years with an additional basket of 770 Euros, and another 80 Euros if there are 3 dependent children;
- Home-building savings (the so-called ‘bouwsparen’): tax relief of 45% for a maximum basket of 2,300 Euros;
- Long-term saving: tax relief of 30% for a maximum basket of 2,300 Euros.
Click here for a list of the tax benefits in the Brussels Capital Region.
Walloon Region - Chèque Habitat
The Walloon Region has now also used its authority to adapt the tax benefits for own homes. The 'Chèque Habitat' was introduced from income year 2016. In concrete terms, this means that the 'Walloon house bonus' can only be applied to loans entered into from 1 January 2005 through 31 December 2015, or to refinancing of such loans after 1 January 2016. Preconditions which have to be met before profiting from the tax benefits of the Chèque Habitat are:
- The loan must have been entered into after 1 January 2016.
- The loan must be secured by a mortgage (a mortgage mandate does not suffice) by an institution in an EER Member State, and must have a duration of at least 10 years.
- The loan must have been entered into for the purchase of a home; a loan for the purpose of renovations does not apply.
- The loan must have been entered into for the borrower's 'own home' (where the borrower themselves is to live). This last pre-condition will be checked every year on 31 December. The home will also be regarded as being 'own' if there are legal or contractual reasons, or social or professional reasons for why the borrower does not live in it.
- The loan must have been entered into for the ‘only’ home. This pre-condition will be assessed each year on 31 December of the loan year. There are a few exceptional circumstances in which the home can still be regarded as being the only home. For example, if the other home is for sale on 31 December of the loan year, and is sold within 2 years; when the other home is rented out through a social housing agency; when the other home was acquired in co-ownership, usufruct or bare ownership, by way of a legacy or donation.
Which tax benefits does the Chèque Habitat provide?
The Chèque Habitat entitles the recipient to tax relief which can subsequently be converted into a refundable tax credit. The tax relief is allocated from the tax year associated with the income year in which the loan was entered into. Therefore, if the loan was entered into in 2016, the tax relief will be allocated from tax year 2017.
The Chèque Habitat is allocated throughout a maximum of 20 taxable periods, to be calculated from the first taxable period for which the legal pre-conditions were met. If the legal pre-conditions for allocation are met for a specific year, the taxpayer is assumed to have received the tax benefit for that year, even though he did not apply for the relief in his tax return!
The Chèque is only allocated if the taxpayer's taxable income is below or equal to 81,000 Euros. There is no phasing-out scheme, so if you have a taxable income of 81,001 Euros, you are no longer entitled to the house cheque for that year.
The amount of tax relief to be converted into a tax credit is determined according to the following formula:
- Per borrower: 1,520 Euros - [taxable income - 21,000 Euros x 0.01275] with a maximum of 1,520 Euros increased by:
- Per dependent child (on 1 January of tax year): 125 Euros, and double that in the case of a child with a disability.
The amounts of the tax relief of 1,520 Euros and 125 Euros are NOT indexed. The amount of the tax benefit declines each year as a result of inflation. The income limits of 21,000 Euros and 81,000 Euros will not be linked to the health index of the month of November 2015 until the beginning of tax year 2018. Moreover, the amount of the tax relief will be halved after the first 10 loan years!
The amount of the tax relief, as calculated according to the formula, will also be restricted to the amount of the actual loan expenditure paid (capital repayment, interest and life insurance premiums to secure the loan). That restriction is applied to each taxpayer, and per taxable period. In contrast to the house bonus, there is no free division of the loan expenditure in the case of a married or legally cohabiting couple. Only the loan expenditure paid at the time the home is the own home, is eligible for the tax relief afforded by the Chèque Habitat.
The proportion of the tax relief which can neither be offset against the Walloon personal income tax nor, after the application of the overflow scheme, against the federal personal income tax, will be converted into a Walloon tax credit, which is refundable. Should the tax relief be converted into a tax credit, it will have no effect on the council tax, since the credit is only calculated after the determination of the council tax.
Click here for a list of the tax benefits in the Walloon Region in tax year 2017.
The federal benefits for home-owners remain unchanged. Just as in previous years, indexation has been suspended, leaving the limits for tax benefits for home loans within the federal system the same as last year.
Click here for a list of the federal tax benefits in tax year 2017.
Moving house from one Region to another can have a big fiscal impact, due to the enormous fiscal differences regionally, each of which has their own particular catches. Completing the codes for the home loans in the tax return has become increasingly complicated with the passing of time.