Owners of a holiday home abroad are used to not paying income tax in the Netherlands on this property. This is because the rules on the avoidance of double taxation assign the right to tax to the country where the property is situated. However, a small amount of tax is usually payable. This is due to the way in which the Netherlands calculates the avoidance of double taxation.
World income
Under tax treaties, the right to tax immovable property is assigned to the country in which the property is situated. If there is no tax treaty, the unilateral Dutch rules provide for the same.
The logical consequence would then be that the Netherlands, as the country of residence of the property owner, would not levy any tax.
However, the Netherlands levies income tax on its residents in respect of their world income. As a result, total income, wherever in the world it is generated, is taxed in the Netherlands. The same applies to holiday homes abroad.
The Netherlands does, however, grant a reduction in the tax calculated on worldwide income for foreign holiday homes. But that reduction is slightly lower than the Dutch tax rate. Up to and including 2016, this was solely due to the tax-free allowance. From 2017 onwards, the effect is greater due to the progressive rate applied in box 3 to determine the flat-rate return.
Holiday home taxed under Box 3
A holiday home abroad is usually taxed under Box 3 (income from savings and investments). Income in Box 3 is determined on a flat-rate basis. Up to and including 2016, this was calculated on the basis of a return of 4%. For example:
| Savings | 550.000 |
| Holiday home abroad | 450.000 |
| Total assets in Box 3 | 1.000.000 |
| Tax-free assets | 24.437 |
| Return basis | 975.563 |
| Flat rate of return (4%) | 39.022 |
| Load (30%) | 11.706 |
| Reduction (450/1,000) * €11,706 | 5.267 |
| Net tax payable in Box 3 | 6.439 |
The flat-rate return on the holiday home is 4% * €450,000 = €18,000. The tax on this return: 30% * €18,000 = €5,400. The reduction amounts to €5,267. The difference (€133) arises because part of the tax-free allowance (on which no tax is due) is allocated to the holiday home abroad.
From 2017
With effect from 2017, the flat-rate return will no longer be set at 4% of the return base. The same assets as in the example above will be taxed as follows in 2017:
| Total assets in Box 3 | 1.000.000 |
| Tax-free assets | 25.000 |
| Return basis | 975.000 |
| Return on tranche 1: 2.87% * €75,000 | 2.152 |
| Return on tranche 2: 4.6% * €900,000 | 41.400 |
| Total return | 43.552 |
| Load (30%) | 13.066 |
The allowance to prevent double taxation on the holiday home is now calculated as follows: (450/1,000) * €13,066 = €5,880.
The tax due is: €13,066 - €5,880 = €7,186.
Without the holiday home, the tax would amount to €6,856. The difference (€330) is due to the allocation of the tax-free allowance (as in 2016), but also to the different tax rates.