Deputy Minister announces change to Box 3
Summary
The change was prompted by the sharp fall in interest rates on savings accounts in recent years and the subsequent widely felt need in society to bring the Box 3 tax more in line with the actual return earned by individual taxpayers. The proposal uses the actual ratio between a taxpayer’s savings, investments and debts. A fixed interest rate on savings is set, which is in line with the most recently available (average) savings interest rate and thus is much lower than the presumed return on investment.
According to the initial calculations, taxpayers with only savings would, in effect, no longer have to pay tax on their savings up to approximately EUR 440,000. This amount is indicative and will probably change in 2022. Furthermore, investors with assets under approximately EUR 30,000, who now pay no tax, will also not have to do so in the future. For those who do have to pay tax, the tax rate will be approximately 33%.
The proposed rules
Under the proposed rules, what will first have to be determined is whether the assets on the reference date (January 1; the same as now) exceed the tax-free assets for each tax partner (EUR 30,360 in 2019 and EUR 30,846 in 2020). If this is the case, the share of the assets that is made up of savings is then determined. The remaining share of the assets is regarded as ‘value of other assets’. Lastly, the amount of debt is determined. Using fixed returns for savings, other assets, and debts, the separate income is then determined and subsequently added together. The proposal uses the following fixed percentages, based on the year 2020:
- A fixed return on savings of 0.09% would be taken into account for the savings balance.
- For the other assets, a fixed return on investment of 5.33% would be taken into account.
- For the fixed interest rate charged on debts, 3.03% would be taken into account, based on the average mortgage interest rate.
A tax-free income of EUR 400 for each tax partner applies to the total income from these assets. The tax rate will increase from 30% to approximately 33%.
The letter that the Deputy Minister sent to the Lower House contains the following table:
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Box 3 now |
Box 3 in the future |
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Assets (assets less debts):
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Assets:
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Fixed return on the capital yield tax base (assets less tax-free assets EUR 30,846):
a + b + c = Box 3 return |
Fixed return on assets:
a + b - c = Box 3 income |
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Box 3 return = Box 3 taxable income |
Box 3 income less tax-free income = Box 3 taxable income |
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Tax rate: 30% |
Tax rate: 33% |
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Reference date arbitrage within Box 3: not possible |
Reference date arbitrage within Box 3: discouraged with legislation |
For the definition of savings, the term ‘deposit’ as defined in Section 1:1 of the Financial Supervision Act (Wet op het financieel toezicht; Wft) will be used. As is now the case, the fixed interest rate on savings will be based on the most recently available (average) interest rate on savings. According to the Deputy Minister, this offers more benefits than taxing the actual interest received on savings, both for taxpayers and the implementing parties. The return percentages for other assets and debts will also be set at fixed rates.
The new regime is however more susceptible to tax evasion, because converting investments into savings around the reference date could prove to be beneficial. The announced bill will therefore include measures to combat this: the ‘anti-arbitrage measures’. At the moment, these still have to be worked out.
Meijburg & Co comments
In proposing this change, the Deputy Minister is primarily offering a concession to taxpayers with only savings. A fixed return of 0.09% and a tax-free income of EUR 400 means that they will not have to pay tax on the first EUR 440,000 (approximately) in Box 3. The amount for joint tax partners will be twice this. We would like to emphasize that the amount of EUR 440,000 is the outcome of the fixed return on savings and tax‑free income that was used and that this amount will probably change in 2022. Taxpayers with mainly investments or property (such as a vacation home or home that is rented out) may, on the other hand, be detrimentally affected by this change, certainly if they have financed the investments or home/vacation home with a loan. After all, the loan can no longer be directly deducted in the tax base from the assets, but will be taken into account at only 3.03%, with the investments or property being taken into account at 5.33%. Different percentages will probably apply in 2022. The Deputy Minister believes that increasing the tax rate from 30% to 33% is essential, because the change to Box 3 should be budget-neutral. The concession to savers is thus at the expense of taxpayers with ‘other’ Box 3 assets.
Next steps
The Deputy Minister indicated that the proposal will be worked out in a bill in the coming period, and that it will be sent to the Lower House before the summer of 2020. The effects for specific groups will also be identified. It will then be possible to debate the bill in the Lower and Upper Houses before the end of 2020. The Dutch tax authorities must then be given sufficient time to implement this major structural change, with the aim being to have the new regime take effect on January 1, 2022. In the longer term, the government will seek to develop more fundamental policy options for the taxation of assets.
