In the Netherlands, most people receive income as employees, where taxes are automatically deducted from their salary. But what happens if you have income from a foreign employer or sometimes work abroad for your Dutch employer? In this article, Taxsight explains the concept of “main residence” in the Netherlands and how it affects your personal income tax return.
What qualifies as a main residence?
In the Dutch tax system, your main residence is classified as a Box 1 asset. This applies to properties you own and use as your primary home. If the property is financed by a mortgage that meets the specific conditions, you can deduct the interest paid on that mortgage in your tax return.
Additionally, certain costs related to the mortgage can be deducted, such as the fees paid to a mortgage advisor and the notary fees for registering the mortgage. However, not all expenses associated with homeownership are deductible.
Conditions for mortgage interest deduction
A mortgage is eligible for a deduction in Box 1 if:
- The mortgage is used to purchase a home for personal use
- The mortgage is repaid using either a linear or annuity method over a period of 30 years
Both linear and annuity mortgages involve annual repayments, but they work in different ways. An annuity mortgage starts with lower repayments and higher interest, increasing gradually each year, while a linear mortgage has a fixed repayment amount.
Calculating the fixed sum for home valuation
In addition to mortgage deductions, homeowners should be aware of the “fixed sum” tax applied to their property. This sum is based on the property’s WOZ value, which is an official valuation used for tax purposes in the Netherlands.
The fixed sum is calculated as 0.35% of the WOZ value for homes valued between 75,000 and 1.2 million euros. For properties valued above 1.2 million euros, the rate is 2.35%. This fixed sum is considered income and is taxed in Box 1.
Mortgage interest and the fixed sum
If your annual mortgage interest payments are higher than the fixed sum, you can still benefit from the tax deduction. However, if your fixed sum exceeds your mortgage interest, you will face additional taxation in Box 1.
The fixed sum is generally higher when you’ve paid off a large portion of your mortgage or if you own your home outright. To calculate the additional tax on the fixed sum, you divide it by 30 and multiply it by a factor based on the year. In 2023, this factor is 5, meaning the taxable amount is relatively low compared to previous years.
For example, if your home has a WOZ value of 500,000 euros, the fixed sum would be 1,750 euros. Dividing this by 30 and multiplying by 5 gives a taxable amount of 291 euros, which is subject to the appropriate tax rates in Box 1.
How to obtain a tax refund on your mortgage deductions
Mortgage interest, along with certain house-related expenses, can be deducted if they surpass the fixed sum, reducing your overall tax liability in Box 1. If you’re employed and have payroll taxes automatically deducted, these deductions may result in a refund when you file your tax return at the end of the year.
It’s important to note that the mortgage interest deduction is no longer refunded at the highest tax rate (around 50%). The deduction has been gradually reduced since 2014, and in 2023, it’s applied against the lower tax rate of 36.93%.
Purchasing a new house before selling your old one
If you purchase a new home before selling your old one, Dutch tax law offers a special ruling. This ruling allows you to declare both properties in Box 1 for a period of up to three years, plus the year of purchase, as long as the old property is empty and for sale.
This ruling also applies if you continue living in your old home (whether owned or rented) while your new home is unoccupied. For example, if you’re renovating your new house and temporarily living in the old one, you can still benefit from the Box 1 tax treatment for both properties.
The key benefit is that your second property won’t be taxed as an asset in Box 3, which would typically apply to a second home. Additionally, you may be able to claim mortgage interest on both homes during this period.
Requesting a provisional tax refund
Once you purchase your main residence, you can apply for a provisional monthly refund of mortgage interest and purchase expenses. This is based on an estimate for the year and is paid in installments. After filing your tax return, the final refund is calculated and adjusted as necessary.
The option to claim this refund is available for the year of purchase, and it can also be claimed in subsequent years for mortgage interest.
Transfer tax
Transfer tax is a one-time fee paid when purchasing a property and is not covered in this article. If applicable, it is paid directly to the tax office at the notary during the property transaction.
Need help with property taxes in the Netherlands?
If you have questions about property taxes or need assistance with tax matters in the Netherlands, Taxsight is here to help. Their experienced tax advisors can provide expert guidance on both local and international tax issues, ensuring you receive the highest level of professional advice and services.
