The most commonly asked question these days it how to prevent paying the Box 3 income tax which is currently more than the assets can make with the current interest rates. The answer to this question is not always very simple or possible, it requires good tax advise. But sometimes it is more simple than you think.
The Box 3 income tax assumes you yielded 4% income over your world wide assets. This 4% yield is taxed at 30%, being 1.2% income tax. The current interest rates are less than 1%. This implies you pay more income tax over your world wide assets than you could have yielded.
How can you yield much more interest over the assets and pay less Box 3 income tax?
This requires a different perspective of your assets and is only possible when you own a house for which you pay mortgage interest. The mortgage interest you pay is between 3% and 6% most of the time. It is true that you can receive a mortgage refund from the tax office related to the highest tax bracket you are in. That varies from 37% to 51% (max). That also implies you lost to the mortgage bank the difference (63% to 49%).
Making payments on your mortgage
If you use your Box 3 assets to make use of the penalty free mortgage repayment. This is most of the time 10% of the total mortgage loan. You save yourself the mortgage interest percentage times the amount you repay…every month.
Lower mortgage refund and less money for the bank
The downside is indeed that you do not receive anymore a mortgage refund from the Dutch tax office for the interest related to the amount you paid back. But then again, why do you need to be refunded for something you are not paying anymore.
Convert Box 3 assets into Box 1 tax free assets
The mortgage related to your house is in Box 1, the money with which you are going to pay back the mortgage is in Box 3. By making payments on your mortgage you reduce your Box 3 tax base, the monthly mortgage amount you pay to the bank is immediately lower and your future debt as been reduced. The money you use to make payments on the mortgage is not lost, only no longer accessible.