If you let out your own home, do you have to pay income tax on the rental income?
In our article On 3 July 2018, we noted that, according to the District Court of North Holland, the letting of a garden shed did not constitute the letting of the entire property and that, consequently, it was not subject to tax.
The Amsterdam Court of Appeal subsequently upheld the ruling of the District Court of North Holland (read more about this in our article Rent from a garden shed is taxed under Box 3).
But what does the Supreme Court make of this?
The temporary rental scheme
Section 3.113 of the Income Tax Act 2001 concerns the temporary letting scheme. Under this scheme, where a person’s own home is let on a temporary basis, 70% of the rental income is taxed in Box 1.
The Act states literally “the owner’s own home that has been made available on a temporary basis”. In case law, there is debate as to whether this refers solely to the owner’s entire home or whether the provision also applies to the letting of part of the owner’s home.
For the purposes of income tax, a home is a property that:
- is at your disposal by virtue of ownership or a right in rem and which;
- you use as your main residence.
The Supreme Court
In the ruling In its ruling of 18 September 2020, the Supreme Court ruled that rental income from a garden shed, which forms part of the owner’s main residence, is taxable under Box 1.
The case is as follows. In 2015, a married couple let out a garden shed to tourists via Airbnb. The garden shed is an outbuilding attached to their own home and was let on a temporary basis. Although the temporary letting scheme (Section 3.113 of the Income Tax Act 2001) refers to the letting of the entire property, the Supreme Court has upheld the Tax and Customs Administration’s view that the scheme also applies where only part of the property is let. The legislature’s intention behind this scheme would be undermined if there were to be different treatment for the letting of the entire property and for the letting of part of it.
The 2020 income tax return
It will soon be time to complete your 2020 income tax return. Did you let out (part of) your own home last year? If so, please don’t forget to declare this on your tax return. Do you have any questions about the tax return? Please feel free to contact one of our specialists.