Yesterday was Prinsjesdag, and the government announced its tax plans for 2021. In this article, we briefly outline the aspects that appear most interesting at first glance.
Income tax, Box 1
In 2021, the tax rate for the first bracket will fall from 37.35% to 37.10% (the first bracket covers taxable income up to and including €68,507). Over the coming years, the rate in the first tax bracket will be reduced to 37.03%. The top rate of 49.50% will remain unchanged.
Percentage of tax deductions reduced
Certain tax deductions, such as mortgage interest relief, the business expense allowance, the SME profit exemption and the employment allowance, will be deductible at a maximum rate of 43% from 2021 onwards, instead of 46% in 2020.
Reduction in the self-employed tax allowance
Over the coming years, the self-employed tax allowance will be phased out at an accelerated rate of €360 per year in order to reduce the tax disparity between employees and the self-employed. Entrepreneurs will be compensated by an increase in the employment tax credit (from €3,819 to €4,205 in 2021) and a reduction in the basic rate in Box 1. These measures also apply to employees.
Income tax, Box 2
The tax rate in Box 2 will rise next year from 26.25% to 26.9%.
Income tax, Box 3
The capital gains tax in box 3 is being reduced. This will, in particular, lower the tax burden on smaller portfolios in box 3.
- From 2021, the tax-free allowance in Box 3 will be increased from €30,846 to €50,000.
- For partners, the tax-free allowance will rise from €61,692 to €100,000.
- The tax brackets are being revised. The second bracket starts at assets in Box 3 of €100,000, and the third bracket starts at assets of €1,000,000.
- The tax rate in box 3 will be increased from 30% to 31%.
Corporate tax
The proposed reduction in the top rate of corporation tax will not go ahead; the rate will remain at 25%. However, the lower rate will be reduced from 16.5% to 15%. This lower tax rate will apply from 2021 to profits of up to €245,000. From 2022, this threshold will be raised to €395,000. This will reduce the tax burden on SME entrepreneurs.
Tax-related coronavirus reserve
When determining the profit realised in 2019, a tax coronavirus reserve may be set aside to cover the expected coronavirus-related loss in 2020. The COVID-19 reserve may not exceed the profit made in 2019 and must be fully recognised in the profit in the year following the year in which the reserve was set up. This may result in a liquidity benefit.
Transfer tax
With effect from 1 January 2021, first-time buyers are no longer liable for transfer tax on the purchase of a property that will serve as their main residence. The exemption is subject to a number of conditions. For example, the first-time buyer must be aged between 18 and 35. Furthermore, the first-time buyer may only make use of the exemption once. For those moving to a new home, a rate of 2% applies. For all other acquisitions, the rate will be increased to 8% from 1 January 2021. This rate applies to the acquisition of a property that is not used as a main residence, such as a holiday home, commercial premises or an investment property.
Deductible allowance under the Work-Related Expenses Scheme (WKR)
This year, the allowance under the work-related expenses scheme for the first €400,000 of the taxable wage bill has been increased to 3%. This applies only in 2020. From 1 January 2021, the allowance will again be limited to 1.7% on the first €400,000 of the taxable wage bill.
Taxable benefit for electric cars
The additional tax liability for the private use of electric cars is being increased in stages. From 1 January 2021, the additional tax liability will be 12% (in 2020 it is 8%) on a maximum of €40,000 (in 2020 €45,000). If the list price exceeds €40,000, the standard additional tax liability of 22% applies to the excess amount. This reduction, applicable up to a maximum of €40,000, does not apply to solar-powered cars. These are cars powered by integrated solar panels. A rate of 12% therefore always applies to these cars. The government aims to anticipate developments in the car market with this measure.