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The repayment requirement applies to home loans taken out on or after 1 January 2013. Subject to certain conditions, the repayment requirement does not apply to existing loans that are converted into new loans on or after 1 January 2013.
Redemption requirement
The repayment requirement stipulates that the loan must be repaid in full, on an annuity basis, within a maximum of 360 months during its term.
This must be agreed in the contract, but must also be complied with in practice. Each year, as at 31 December, a check is carried out to determine whether the outstanding balance on the home loan is actually lower than the repayment requirement. Even a minimal deviation means that the repayment requirement has not been met. In that case, there is a payment arrears.
A brief deviation is permitted
If, on 31 December of a given year, it transpires that there is a repayment arrears, the debt remains a home ownership debt if:
- the arrears have been cleared by 31 December of the following year at the latest; and;
- this does not happen more often than occasionally.
If, on 31 December of the calendar year following the calendar year in which the repayment arrears arose, the arrears have still not been cleared, the loan remains a home ownership loan provided that:
- the taxpayer demonstrates that this is due to insufficient ability to pay and;
- as from 1 January of the second calendar year following the calendar year in which the repayment arrears arose, a new repayment schedule – at least on an annuity basis – has been agreed with the creditor.
Second loan for repayments
It sometimes happens that repayments on a mortgage are made using funds from another loan. This second debt is, of course, not a mortgage (but is taxed as income from savings and investments; Box 3).
However, if there is such a connection between the two debts that they effectively constitute a single debt, the first debt will no longer qualify as a home-purchase debt.
There is no such connection if[1]:
- the annual interest on the first debt is not offset administratively against the annual interest on the second debt or the amount drawn down from the second debt in that year;
- the interest on the first debt is in line with market rates and does not relate to any rights or obligations other than the provision of the principal amount of the first debt;
- the interest rate on the second debt is not lower than the interest rate on the first debt.
Payment deferral due to the coronavirus crisis
In the context of the coronavirus crisis, banks are widely allowing borrowers to take a payment holiday. The same applies to lenders other than banks, such as one’s own private limited company or family members.
Lenders are offered more flexibility than that provided for under the (statutory) arrangements described above when it comes to organising such a payment holiday[2].
Conditions
The following conditions apply:
- the (impending) payment difficulties resulting from the coronavirus outbreak were reported to the lender between 12 March 2020 and 31 March 2021;
- As a result, a payment holiday has been agreed, which:
- comes into force no later than 1 April 2021 and;
- is confirmed in writing by the lender;
- The payment holiday may last for a maximum of 12 months.
If the lender is not a bank, two additional conditions apply:
- As a result of the coronavirus outbreak, the borrower has experienced a fall in earned income of at least 20% over a consecutive period of 3 calendar months, whereby:
- the period of three consecutive calendar months must begin between 1 March 2020 and 1 April 2021;
- the income from employment during the aforementioned period is compared with 1/4e proportion of total earned income in 2019 or of earned income during the period from 1 January to 31 March 2020;
- the taxpayer must be able to demonstrate that they meet all the conditions
Approvals
Provided that all these conditions are met, the arrears on repayments may be cleared in the following two ways, in addition to the existing arrangements:
- agree on a new repayment schedule for the remaining term of the entire debt before 1 January 2022 or 1 January 2023;
- breakdown of the debt into:
- an old tranche for which the existing repayment schedule will continue
- a new instalment equal to the repayment arrears that have accumulated during the repayment holiday, with a new repayment schedule.
In both options, the outstanding repayments are spread over the remaining term of the loan.
(Deductible) interest
The significance of the loan being classified as a home purchase loan is that the interest and costs associated with the loan are deductible from income from employment and property (Box 1).
Interest may only be deducted if it has been paid, set off, made available or has become interest-bearing.
Interest not paid during the payment holiday only becomes interest-bearing (and deductible) if:
- there is a decision by the lender which shows that the interest due has been fixed and that this amount remains outstanding and continues to accrue interest;
- interest is charged;
- there is genuine certainty that the interest will in fact be paid.
It is worth noting that the decision states that the interest is also deductible if, due to the exceptional circumstances arising from the coronavirus crisis, an interest payment of 0% is agreed in respect of the unpaid interest.
PLEASE NOTE!
Taxpayers who, as a result of a payment holiday, pay less interest on their mortgage may have a higher income. This has implications for the provisional tax assessment and for income-related schemes (including benefits). It is advisable to take timely and appropriate action in this regard.
The purpose of this note is to outline a scheme. In the interest of readability, matters have been simplified. VWG is therefore not liable for the consequences of actions taken or not taken as a result of this memorandum.
[1] Decision of the State Secretary for Finance of 26 February 2013, No. BLKB/352M (Government Gazette 2013, No. 5687).
[2] Decision of the State Secretary for Finance of 16 December 2020, No. 2020-27806, Government Gazette 2020, No. 66447 (the Decisions of the State Secretary for Finance of 22 September 2020, No. 2020-20122, Government Gazette 2020, No. 50146, 16 June 2020, No. 2020-109040, Stcrt. 2020, No. 33204, and of 6 May 2020, No. 2020-85139, Stcrt. 2020, No. 26069, have been repealed).