If you let out your own home, do you have to pay income tax on the rental income?
Own 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.
To benefit from owning your own home, you must include an additional amount in your income from work and home (Box 1). This additional amount, known as the notional value of owner-occupied accommodation, is calculated on a flat-rate basis based on the WOZ value of the property. For 2018, the additional tax liability for most properties amounts to 0.75% of the WOZ value. Lower additional tax percentages apply to WOZ values up to €75,000. For the portion of the WOZ value exceeding €1,060,000, 2.35% must be added.
You may claim a tax deduction for the interest and charges you pay on the loan used to finance your own home. However, the loan must meet a range of conditions, which we will not go into in detail in this article.
If the additional tax liability exceeds the deductible interest and costs, you do not pay income tax on the difference. However, this so-called ‘Hillen deduction’ will be phased out from 2019 onwards abolished.
Temporary rental
The notional value of your own home is deemed to include all the benefits you derive from your own home. However, the law contains an additional provision whereby income from temporarily making the property available to third parties is taxed in addition to the owner-occupied property allowance. You must therefore include the income from the temporary letting in your income tax return (form 70%) alongside the owner-occupied property allowance.
At the North Holland District Court The question has been raised as to whether this also applies where not the entire owner-occupied property is made available. The case heard by the District Court concerns the letting of a garden shed, which forms part of the owner’s home. This garden shed was let to tourists for 21 days in 2015, generating €3,564 in rental income. The Tax and Customs Administration counts 70% of this amount (€2,494) as income in box 1 and has issued a supplementary tax assessment for this sum.
However, the Court has ruled that, based on a literal interpretation of the current wording of the law, income from the temporary letting of one’s own home is only taxable in Box 1 if it relates to the letting of the entire property in question. The additional tax assessment is therefore set aside.
Appeal
As this concerns a legal issue of principle, the Tax and Customs Administration will lodge an appeal. Given developments such as Airbnb, there are also significant interests at stake. Until the Supreme Court has handed down its ruling, the Tax and Customs Administration will continue to tax income from the short-term letting of part of your own home. The legislature may even decide to resolve this uncertainty for the coming years by amending the law.
If you wish to benefit from a favourable final decision, you must lodge a (pro forma) objection in good time against the income tax assessment(s) in which the income is taxed. Your objection must be received by the Tax and Customs Administration within 6 weeks of the date of the final assessment. You must lodge a separate objection for each tax year. It is essential that you let out the space on a temporary basis and that the space is regarded as part of your own home under the owner-occupied property scheme.