The tax benefits of owning your home
Buying a house in the Netherlands offers very attractive tax advantages, writes Boekel De Nerée tax advisor Dorine Fraai.
Owner-occupied dwelling
What happens if you rent your own house?
Real estate transfer tax
The purchase of monuments
What happens if you leave the Netherlands?
The tax consequences of buying your own home in the Netherlands are dependent on whether the house is an owner-occupied dwelling or an investment item.
Owner-occupied dwelling
Dutch law states that home owners earn a taxable income from an owner-occupied dwelling. This taxable income is known as the imputed rent.
The imputed rent is a percentage (a maximum of 0.8 percent) of the true value of the dwelling determined by the municipal authority. The true value of the dwelling is known as the WOZ-value.
From this imputed rent the mortgage interest is deductible. The taxable income from an owner-occupied dwelling is taxed in Box 1 in your annual tax form and as a result, the mortgage interest may be tax deductible against an effective rate of a maximum of 52 percent.
Apart from the mortgage interest, all the costs that have been incurred in connection with the financing of buying the house are also deductible.
These financing costs will normally consist of the mortgage interest, the notary fees for drafting the mortgage contract and the commission for the bank for offering the mortgage loan.
These costs are deductible in the year in which they have been paid.
The above regime is only applicable provided that the house can be classified as the principal dwelling of an individual.
The tax deductible costs made in connection with your own home can be claimed in the income tax return for a calendar year, but can also be obtained during the year in which they are paid by requesting for a preliminary refund of income tax.
What happens if you rent your own house?
If the real estate is rented permanently to a third party, the taxation of the real estate will take place according to the regime in Box 3.
The house is thus not considered to be the principal dwelling of the individual, but is considered as a second home. Second homes and other immovable property are included in Box 3, in which income from savings and investments are taxed.
In Box 3, the average annual value of property and assets minus debts are taxed.
Update: The expat housing market
Buying a home
The property and assets minus the debts are deemed to produce a net yield of 4 percent per year, which is taxed at the flat rate of 30 percent. This means that the government levies a tax of 1.2 percent on the average net annual value of the capital assets.
The assets and debts are valued at fair market value and the average is calculated by adding the values as per 1 January and 31 December and dividing the total by two.
If the principal dwelling of an individual is temporarily rented to third parties, 70 percent of the rental income will be taxable in Box 1 and the mortgage interest and other costs made in connection with the financing of the purchase of the house are deductible.
Real estate transfer tax
If you buy a house in the Netherlands, you will be taxed with real estate transfer tax.
The tax rate is 6 percent and the real estate transfer tax is levied on the true value of the house. The real estate transfer tax is not deductible for income tax purposes and is usually included in the total amount of the mortgage loan that the bank will offer.
The purchase of monuments
For houses which are registered in the Rijksmonumenten-register as an historic monument, a special regime applies.
A house that is classified as a monument, is taxed on the imputed rental income of a maximum 0.8 percent of the true value of the monument, while the mortgage interest and other finance costs are deductible. This regime only applies provided that the monument is considered to be the owner-occupied dwelling.
In addition, the costs involved with the normal maintenance of a monument are deductible, provided that the costs exceed a certain threshold. This threshold amounts to 1.1 percent of the WOZ-value for monuments taxed according to the Box 1-regime, while the threshold is a minimum of EUR 136 and a maximum of EUR 11,150.
For monuments considered to be the second home of an individual, the regime of Box 3 applies.
But in addition to the regime of Box 3, costs involved with normal maintenance of Box 3-monuments are also tax deductible, provided that they amount to more than 4 percent of the true value of the monument.
What happens if you leave the Netherlands?
Once you leave the Netherlands, the income from your house will continue to be taxed in the Netherlands. You will become a non-resident taxpayer, who is subject to Dutch income tax as far as income from a Dutch-based source is concerned.
Your house in the Netherlands will no longer be considered to be your first owner-occupied dwelling. As a result, the income from your house will no longer be taxed in Box 1 and the mortgage interest will no longer be tax deductible. After emigration, the house will be taxed according to the regime of Box 3.
But this is not necessarily a big disadvantage, provided that you rent the house for a rent equal to the gross amount of the mortgage interest payable.
In that case, you will be taxed on the average amount of your savings and investments minus your debts and the actual rental payments will not be taxed as such. As a result, you can continue to keep the house tax free.
If you sell a house in the Netherlands, no capital gains tax applies. Any profit made by the sale of a house is tax exempt.
October 2002
Dorine Fraai is a tax advisor at Boekel De Nerée, Amsterdam. For more information email: dorine.fraai@bdn.nl, tel +31 20 431 31 91 or fax +31 20 431 3121
This article contains information of a general nature only and may not be considered as legal advice. Although the greatest care has been taken in drafting this article, the possibility exists that certain information may have become out of date or inaccurate since this article was published. Boekel De Nerée cannot be held liable for the consequences of actions or omissions based on the content of this article. |
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