The final article in our series “Your 2017 Income Tax Return” is about property. This is the final article in the series, as the deadline for submitting 2017 income tax returns – unless the Tax and Customs Administration has granted you an extension –, 30 April 2018 is.
If you are unable to submit your tax return by 1 May 2018, please apply by 30 April 2018 at the latest postponement Come on!
Property: in all tax brackets
You may come across property in all tax boxes. In box 1 under ‘profit from business activities’ (WUO), ‘income from other activities’ (ROW) and, of course, under the owner-occupied property scheme. In box 2 the property is “hidden” within your private limited company or another entity. In that case, you won’t see any trace of it in your income tax return. If boxes 1 and 2 do not apply, property is included in box 3 taxed.
Business profit
If the property is owned by you, it must be determined whether it is a private property or a business property. If the property is used for business purposes for more than 90%, it is classified as compulsory business assets. It is classified as compulsory private assets if the property has virtually no connection with the business.
Where a property is used for both private and business purposes, you have the option to choose its classification. You may then indicate on your income tax return whether you wish to classify the property as private or business assets. You must make this choice in the first tax return in which you include the property. You may change this choice up to 6 weeks after the date of this year’s final tax assessment.
Income from other operations
This may apply when you make a property available to a related legal entity. For example, to your own private limited company or your partner’s business. In that case, the income from making the property available is classified as income from other activities. This scheme is also known as the ‘making available’ scheme or the TBS scheme.
The result is then determined on the basis of the rules governing business profits. In the year in which the property is first made available, it is valued at market value in the opening balance sheet. The income is taxed in the hands of the person making the property available. Naturally, the actual costs are deductible. In the case of properties forming part of a full or limited community of property, the profit is divided 50/50 between the tax partners.
Property is also taxed as income from other activities if its management goes beyond normal asset management. This may be the case if you sell the property. And if you carry out major maintenance or other alterations yourself. Or if you make a small profit through insider information or other forms of special knowledge.
Own home
For tax purposes, a property is considered your own home if you or your tax partner:
- you are the owner or beneficial owner of the property and;
- the property is your main residence.
The benefit of living in your own home is taxed under Box 1. The value of this benefit, known as the notional rental value, is a percentage of the WOZ value of your home (for 2017, with a reference date of 1 January 2016).
If you have also taken out a mortgage to finance your own home, the notional rental value is reduced by the deductible mortgage interest. The costs associated with the loan are also deductible (such as advisory fees, arrangement fees and notary fees). The rules governing the deduction of mortgage interest are complex. Please feel free to contact our when you can’t see the wood for the trees.
If the amount of deductible mortgage interest is lower, you are entitled to a deduction because you have no or only a small amount of mortgage debt on your own home. The deduction is the difference between the notional rental value and the deductible mortgage interest. This is also known as the “Hillen deduction”. This deduction is being phased in by the Rutte III Government abolished.
If you temporarily let out your own home in 2017, the property remains your own home for that period. You therefore simply calculate the notional rental value for the letting period, and the mortgage interest is tax-deductible. However, you must declare the rent received, less any costs incurred, as income from temporary letting.
Other property
Other property is taxed under Box 3. ‘Other property’ includes all property that is not taxed under Box 1 or Box 2.
If the properties in question are in the Netherlands and are not let, you must state the 2017 WOZ value (reference date 1 January 2016) in your tax return.
If the property is let and the tenant is entitled to tenant protection, you may reduce the 2017 WOZ value by the depreciation ratio. For properties not subject to rent control, the market value is the determining factor.
If the property is situated abroad, you must state its market value in your tax return. To avoid having to pay tax on the properties in more than one country, you are entitled in the Netherlands to double taxation relief.
For other immovable property, you must state the market value as at 1 January 2017 in your 2017 income tax return.