When do you pay taxes on your second home?
Recently, there has been much talk about taxation of second homes. Should you pay it or not? Our tax advisor Ton Krol explains what you can do with the "actual income" from your second home in your Dutch income tax return.
Property value increase
According to the Belastingdienst, you report income from renting out the second home in Box 3. In it, you also report the increase in value of the home based on the WOZ value. The box 3 tax is charged for both items: return on property and investments at 5.53%. Not fair according to an objector with a second home. He had no rental income, but his home had increased in value and he was taxed on that. His reasoning was that you only pay tax on income actually obtained from investments. In his case, this would only be realized after the sale of the second home.
No capital gain
The Court of Appeal in 's-Hertogenbosch ruled in favor of the objector on March 22, concluding, "Between the parties, it is established that the property did not produce any direct income. The court leaves open the question whether there is an unrealized capital gain, since such gain cannot be regarded as an 'actual income realized'." The additional tax assessments were overturned and the plaintiff was not required to pay.
So the crux is in the term "actual income". This was established in the so-called Christmas ruling of Dec. 24, 2021, and is causing a lot of ambiguity. The purpose of the ruling was to fix the box 3 capital gains tax for 2017 and 2018. This was based on an estimated return of 4% (notional deemed yield) on savings for which the actual interests received as close to nil. This violated the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) and provided legal redress for taxpayers following a mass appeal.
So only the actual income from rented out properties should be taxed. But this term still leaves a lot of room for interpretation. For example, the tax authorities believe that the increase in value of the second home still falls under actual income and can therefore be taxed. It is expected that the Supreme Court will soon put an end to this lack of clarity. What does that mean for your tax return in the meantime?
Do not pay
Until the Supreme Court comes up with clarity on the term actual income, we recommend to report the second home for a value of nil in the 2022 income tax return when you do not rent out the home. However, you will need to send a letter to explain your position. We will draft this. In the letter we refer to the ruling of the court of appeal in 's-Hertogenbosch. Although you do not have to pay the tax, we recommend that you keep the amount in reserve in case the Supreme Court goes along with the Belastingdienst and makes capital gains taxable.
Rental by expats
Do you live and work abroad and have rented out your home in the Netherlands? Then you declare the home in box 3 in the normal way.
For owners of a second home, the court's ruling seems like good news. However, I think we should not celebrate too soon. The chances that the Supreme Court will not go along with the court are, in fact, quite high. We therefore strongly recommend taking into account that the increase in value of the second home will still be made taxable.
Make an appointment
Do you have a second home, foreign or otherwise, and want to know how it affects your income tax return? Please contact us for an appointment. During an orientation meeting you will learn all about our services for your situation.