A man receives payments from several annuity insurance policies. The tax inspector taxes these amounts under Box 1, leading to a dispute over the correct tax treatment. The man had a 'High-Yield Savings Policy' and two other insurance policies containing an annuity clause. In 2019, he received payments of €49,119, €21,968 and €7,025. The tax inspector includes these amounts in Box 1 of the income tax return. The man believes that the payments should be taxed in Box 3, as they relate to investment products. He also wants the balance method to be applied, so that only the portion exceeding the premiums paid is taxed.
Box 1 and the balance method
The court ruled that the insurance policies were correctly taxed under Box 1. The 'High-Yield Savings Policy' is an endowment policy with an annuity clause that falls under the 'pre-Broad Revaluation Regime'. Under the legislation in force prior to 2001, which still applies to this older policy, the surrender of such an insurance policy is taxed under Box 1. The man did not set the annuity instalments in good time or convert them into a qualifying annuity, as a result of which the surrender value falls under Box 1. The other two insurance policies were also taken out with an annuity clause.
Reversal rule
The tax levied in Box 1 on the benefits is not merely a tax disadvantage. It is a consequence of the reversal rule and forms part of a tax system which, due to the existence of a corresponding tax advantage, strikes a certain balance. That benefit consists, in any event, of the tax deduction for premiums paid in previous years. Furthermore, the value of the insurance policies prior to surrender did not give rise to taxation under Box 3.
Balance method
The balance method means that only the portion of the benefits that exceeds the premiums paid is taxed. However, this method cannot be applied if the premiums have been, or could have been, deducted. With regard to the 'High-Yield Savings Policy', the man has not demonstrated that he did not claim the premiums as a tax deduction. Given the nature of the insurance policy, it is likely that he did so. As for the other two insurance policies, the man himself confirms that he did claim the premiums as a tax deduction.