Are you drawn to the mountains? Are you considering buying a chalet at the foot of the slopes to combine personal enjoyment with a profitable investment? While emotion often guides this type of purchase, being well informed beforehand will help you optimize your acquisition and avoid certain disappointments. Local taxation, financial arrangements, inheritance implications... There are many factors to consider to make this project a success.
With recent legislative and tax changes, it is more important than ever to seek expert advice in order to choose the best strategy and get the most out of your investment.
So how can you make this dream a reality under the best possible conditions? Here is an overview of the key factors to consider.
Purchase of a second home: taxation on purchase
As a reminder, in Belgium, the purchase of a building is subject toregistration feesor VAT if the property is considered new. The applicable rate is 12% in Flanders and 12.5% in Wallonia and Brussels. Since this concernsthe purchase of a second home, we will not discuss thenew reduced rate for owner-occupied and single dwellings.
What about abroad?
Similarly, when purchasing a property abroad, local taxes almost always apply. Each country has its own rules regarding property taxation, and these differences can influence the choice of investment destination. It is therefore essential to do your research before making any purchase in order to anticipate the additional costs associated with taxation in the country of interest.
Let's return to our example of a pied-à-terre in the mountains, which will most often be located in France, Italy, or Switzerland. In France, the purchase of real estate will incur a total tax of around 5.8%, while in Italy, the purchase will be subject to a slightly higher tax of 9%. Switzerland is one of the least expensive countries in Europe and the Alps in this regard, as depending on the canton, acquisition costs will generally be around 3% (5% for the canton of Vaud, which is the most expensive).
Taxation of rental income
Belgian residents are liable for tax on their real estate income when they receive it as a natural person. The Belgian government calculates the tax due on the basis of the indexed cadastral income, plus 40%. However, the deduction of ordinary loan interest often limits or even eliminates this taxable base. From 2026, this will unfortunately no longer apply, as the new government's agreement provides for the outright abolition of this benefit for all loans, whether new or existing!
What about abroad?
Since 2022, taxation on property located abroad has been calculated in the same way as for property located in Belgium (previously determined using the rental value). This means that any purchase of property abroad must be declared within four months, otherwise a fine will be imposed, but this does not necessarily mean that it will automatically be taxed in Belgium. Reference must be made to the double taxation agreements applicable between Belgium and the country where the property is located. Often, taxation is levied in the country where the property is located and Belgium applies an exemption.
Let's take the example of a chalet in France. If it is not rented out, there is in principle no applicable tax. If the non-resident owner rents out the chalet, the tax is calculated using a progressive rate starting at 20% for the first bracket of actual rental income up to €27,478 per year.
In Italy, the same principle applies: no rental income, no tax. If the property is rented out, a progressive tax rate also applies, starting at 23% for income up to €28,000. The taxable base is equal to 95% of the annual rental income or the revalued cadastral income, whichever is higher.
Although this income cannot, in principle, be taxed twice, Belgium will take it into account when determining the tax rate applicable to total income. This may therefore result in a jump in tax bracket and, ultimately, a higher personal income tax bill.
Second home abroad: how should estate planning be organized?
Beyond immediate tax considerations, it is essential to plan ahead for the transfer of real estate in order to avoid excessive inheritance taxes. After all, what is the point of optimizing the profitability of an investment if, at the time of transfer, a significant portion of its value is absorbed by inheritance taxes? Careful planning not only preserves the family's assets, but also reduces the tax burden on the heirs.
Let's take the example of a building located in the Walloon region, other than the family home, valued at €500,000 and passed on to two children as heirs. Each child will therefore inherit half of the building, valued at €250,000, taxed at a progressive rate for a total amount of €26,625 on each share, in the best-case scenario, assuming that nothing else is included in the inheritance.
In Belgium, a commonly used strategy to avoid this "cost of grace" on real estate assets is to acquire the property in dismemberment: the parents purchase the usufruct, while the children become bare owners. Ultimately, upon the death of the usufructuaries, full ownership is automatically transferred to the children without them having to pay any additional fees.
However, children often do not have the necessary funds to purchase bare ownership. In this case, a prior gift of movable property may be considered, either in the form of a registered gift with payment of gift tax, or via a private gift. Please note that in this case, in order to give a definite date to the transaction, the unregistered donation must be accompanied by supporting documents sent by registered mail to give a definite date.
What about abroad?
When the property is located abroad, it is essential to take local taxation into account. Most countries apply inheritance tax when the deceased's property is located on their territory, which is often deductible from Belgian tax under tax treaties. Furthermore, the validity of the dismemberment transaction is not always certain. Nevertheless, in France and Italy, to return to our example, dismemberment works and can be an advantageous option, provided that the specific procedural requirements of each country are complied with.
Anticipating the transfer therefore makes it possible to reconcile asset efficiency and tax optimization, thus ensuring that the investment fully benefits future generations.
How to finance a second home?
The financing method plays a decisive role in the profitability of a real estate investment. To finance a real estate investment, buyers have several options available to them, each with its own specific features and advantages.
The first question to ask yourself concerns the contribution of your own funds. Should you use your savings or take out a loan? In many cases, it may be wise to keep your cash available, for several reasons:
- Maximizing profitability: well-invested equity can generate a return that exceeds the cost of credit.
- Preserve your investment capacity: by keeping part of your savings, you retain flexibility for other investment opportunities and can thus optimize your overall assets.
- Facilitating wealth transfer: financial capital is generally easier to transfer than real estate, particularly in terms of inheritance tax.
Next, choosing the type of loan is another key step. There are several options beyond the traditional amortizable loan, including:
- Bullet loan: only interest is paid during the term of the loan, with the principal being repaid in a single lump sum at maturity.
- Lombard credit: backed by an investment portfolio, it offers attractive flexibility to investors with financial assets.
- Mixed credit: combining the advantages of several options, it allows repayment to be tailored to the borrower's needs.
What about abroad?
Generally speaking, in order to obtain financing from a Belgian bank for a purchase abroad, it is often necessary to own unencumbered real estate in Belgium, which can be used as collateral.
The RGF Group offers flexible and optimized financing solutions for this type of project, with borrowing options tailored to each profile, including long-term loans (30 years or more) and age limits of up to 85 years.
Choose experts to support you
The tax and financial implications of buying property in the mountains are numerous and can influence the overall profitability of the investment.
If the purchase is intended solely for personal use, the focus is more on the value of the property and long-term capital gains. This is why it is important to seek expert advice in order to maximize tax benefits, optimize the financial arrangements, and plan for the transfer of assets.
A successful real estate project begins with thorough preparation: surround yourself with experts to explore all avenues and study the best financing options suited to your situation and your financial goals.
By Julie G
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