No tax deduction for owner-occupied property; still have to pay tax

You pay income tax in Box 1 on the benefit derived from your own home. Your own home is the property of which you are the (co-)owner or beneficial owner and which is your main residence.
If the amount of interest you deduct for your own home is less than the value of the benefit you derive from it, you do not have to include the balance in your income. However, since 2014, this does not mean that you do not have to pay tax.

Tax allowance for owner-occupied property

The value of the benefit of owning your own home is assessed on a flat-rate basis (the notional value of owner-occupied property, formerly flat-rate rental value). This flat-rate amount is calculated on the basis of the WOZ value of your own home. For 2017, the additional tax liability amounts to 0.75% of the WOZ value. Lower additional tax percentages apply to properties with a WOZ value of no more than €75,000. For WOZ values above €1,060,000, as much as 2.35% must be added.

Example
The local authority has set the WOZ value of your home for 2017 at €350,000. Your home allowance is therefore: 0.75% * €350,000 = €2,625.

Mortgage interest deduction for your own home

You may deduct the interest and charges you pay on loans taken out to finance your own home. However, the loans must meet a number of conditions, which we will not discuss in this article. The interest is deducted from the ‘own home allowance’. On balance, this often results in a tax deduction.

Example
You financed the purchase of your home, which has a WOZ value of €350,000, partly with a bank loan of €250,000. You pay 2.25% interest on this loan each year, which amounts to €5,625. The tax deduction for your own home is therefore:

Hillen deduction

Where the balance of the owner-occupied property allowance minus the deductible interest does not result in a tax deduction, there is no need to add this amount. In that case, you may claim the so-called Hillen deduction apply.

Example
Partly because your savings are yielding a low return, you decide to make a repayment of €150,000 on your mortgage. As a result, the annual interest payable falls to 2.25% * €100,000 = €2,250.

Rate adjustment

For the past few years, mortgage interest on one’s own home has no longer been deductible at the highest rate. The highest rate for income tax in box 1 is 52%. In 2017, this rate applies to income in box 1 exceeding €67,072. In 2017, this rate is adjusted to 2% for the deduction of mortgage interest on the owner-occupied home.

Example

The tariff adjustment was 0.5% in 2014, 1% in 2015 and 1.5% in 2016. In the coming years, the rate of adjustment will be increased by 0.5% annually.

Rate adjustment and tax relief

This adjustment also applies in situations where, as a result of the Hillen deduction, no net owner-occupied property allowance needs to be applied.

Example

The North Holland District Court has recently confirmed that, in this situation, income tax is indeed payable as a result of the rate adjustment.