“New Box 3 tax makes holiday homes considerably more expensive” reads the headline in the FD on 1 August. What’s going on?
This concerns the bill Act on the Actual Return in Box 3, which outgoing State Secretary Van Rij submitted to the Council of State (RvS) for advice just before his departure. It is therefore still quite uncertain whether these proposals will come into force unchanged. In addition to the Council of State’s advice, the bill must, of course, still go through the entire parliamentary process. The intended date of entry into force is 1 January 2027 (though it remains to be seen whether this will actually be feasible).
Current flat-rate Box 3
A holiday home is taxed as income from savings and investments (Box 3). This income is currently calculated on a flat-rate basis at (approximately) 6% of the (WOZ) value of the holiday home. The rent actually received and any increase in the value of the holiday home are completely disregarded (as is, of course, any decrease in value).
If a loan was taken out to purchase the property, approximately 2.5% of the debt may be deducted from Box 3 income.
Actual return
On 24 December 2021, the Supreme Court ruled – and reiterated this very clearly in June 2024 – that income in box 3 may not exceed the return actually achieved on the assets. In June, the Supreme Court also set out how this actual return should be determined.
The rules laid down by the Supreme Court will apply until the new Act comes into force. However, until that time, you may choose to tax the flat-rate return provided for in the Act.
With regard to property, the bill provides that direct income (such as rent) is taxed, after deduction of maintenance costs and interest paid on the purchase of the property. In addition, any capital gain realised on the sale of the property is taxed. When determining direct income, a distinction is made between:
- property let for 90% or more of the year: the actual rental income (less expenses) is taxed;
- property that is not let throughout the year: is the income calculated at 2.65% of the (WOZ) value;
- other property: the income is equal to the higher of the actual rental income (less costs) and 2.65% of the (WOZ) value.
Conclusion (provisional)
It is clear that the tax burden on holiday homes will rise significantly if the bill is introduced in its current form. Whether the bill is introduced in this form is, of course, a political decision. The FD notes, based on data from the Land Registry, that the bill is already casting its shadow in the form of falling purchase prices for holiday homes. The NOB has, in its comment It has been pointed out that the flat-rate levy of 2.65 (which is considerably higher than the additional tax liability of 0.35% for owner-occupied homes) may well be in breach of European law.