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29Nov

New tax rules applicable to the own dwelling

 

As mentioned in our HRS Headline of 23 November 2004 (*), the Government recently introduced its draft bill of the so-called Program Law to the Parliament. We noted another important change included in this draft bill: the income tax treatment of the taxpayer’s own dwelling.

Context

As well as being subject to property tax, the own dwelling is also subject to personal income tax at the taxpayer’s marginal tax rate. The own dwelling is taxed on its deemed value from which lump sum rebates and interest paid on loans specifically taken out for acquiring real estate income are deductible. In addition, subject to certain conditions, own dwelling related mortgage loan redemptions and related individual life insurance premiums give right to a favourable tax credit, though this credit is capped.

News

As of 1 January 2005, the deemed value associated with the own dwelling will be considered exempt income for personal income tax purposes, except if the taxpayer claims a deduction for interest charges relating to a qualifying loan concluded before 1 January 2005. It remains however subject to the property tax which, as a result of the aforementioned exemption will no longer be creditable (it was creditable up to 12,5% of the deemed value) from the personal income tax.

Furthermore, the current deduction system of interest charges and the tax credit system for mortgage loan redemptions and related individual life insurance premiums associated with the own dwelling will be revoked for loans concluded as of 1 January 2005. For those loans, these charges (i.e. interest, loan redemptions and insurance premiums) will be considered as expenses deductible from the taxpayer’s total taxable income, up to a maximum amount of EUR 1.500 which is subject to indexation. This limit is increased up to EUR 2.000 for the 10 first taxable years as of the year during which the mortgage loan is concluded.

It should be stressed that the above is part of the draft bill of the Program Law and may still be subject to amendment before being finally passed by the Chamber of Belgian Representatives.

The draft bill of the Program Law is available on the Chamber’s web site:
FR: http://news.hrservices.be?lk200411221
NL: http://news.hrservices.be?lk200411222

(*) http://news.hrservices.be?200411231924

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Posted: November 29th, 2005