The 2017 preliminary assessment is based on the 2016 preliminary assessment, but is that assessment still up to date?
What is a 2017 preliminary assessment?
A preliminary assessment is a positive or negative assessment issued by the Dutch tax office. A negative assessment implies a refund, a positive assessment implies you need to pay the Dutch tax office.
A negative assessment is caused by for instance you owning your house for which you took out a mortgage and the tax break on the monthly payment to the bank is received by you on a monthly basis. In other words, the annual refund has been changed into a monthly refund.
A positive assessment is caused by for instance you having a private company and you expect to make a profit in the year at hand. The tax office likes to collect the tax immediately, like they do with employees.
If your 2017 preliminary assessment up to date?
When you filed your 2015 income tax return earlier this year, the outcome of that return basically states whether your current assessment is correct.
If you had to pay back tax to the tax office, then your refund assessment is most likely too high.
The base of the refund assessment are:
- your income
- the value of the house and
- the interest paid over the mortgage loan.
We assume your income goes up, which is good. We assume under the current market situation that the value of your house set by the county, the so called WOZ value, also goes up. That is not so good, as the higher the value, the higher the threshold is for the interest deduction. Furthermore we expect that over time you have paid back more and more of the base loan to the bank, hence each year you pay less and less mortgage interest.
The above in combination with the fact that the tax office is limiting the deduction every year by at least 0,5%, we expect you need to update your preliminary assessment.
What is the 0,5% about?
The maximum tax rate in the Netherlands is 52%. So till about 2013 we could state you can deduct the mortgage interest at a maximum rate of 52% from your income, if you had a 52% taxed employment income. The tax office has reduced the maximum deduction rate for mortgage costs by 0,5% every year and in the year 2017 the maximum deduction amount is 50%.
The ultimate goal is to come to a 38% in 2042. 38% makes it possible to convert the mortgage deduction in Box 1 to a Box 3 aspect. Hence no more mortgage deduction. 20142 sounds far away, but I am rather convinced that a new Government soon needs to speed up this date for budget reasons.
Until then you have the mortgage deduction.
Orange Tax Services
We can assist you in setting up the preliminary assessment. Whether you need to pay or whether you expect a refund does not make a difference for us. Feel free to contact us.