Usufruct in Box 3 is never seen. Usufruct has been more or less abandoned from regular Dutch tax returns. What is this about?
Usufruct in Box 3
Usufruct implies you own something, often a property. That property you then give fully in control of another person, while you keep the owners’ rights. You would be stupid if you do so, not when family is involved.
Exemption Box 3
Exactly that is the article about. Your parents transfer the owners’ rights to you under the condition they can stay in the property till they die or go to elderly home. Article 5.4 sub 3 of the Dutch income tax makes an exemption for the following situation:
Not part of the Box 3 worldwide assets are the goods subject to usufruct for the married partner of a deceased parent of the owner of the goods. This is only the case if the usufruct is based on last will of the deceased parent or based on foreign inheritance legislation.
This asks for a court case example.
Usufruct in Box 3 court case
A French woman, being a tax resident in the Netherlands. She receives by notarial deed the ownership of the house of her parents. The house is in France and the condition of the deed was that her parents were fully in control till the day they will die. The value of the property is EUR 200.000.
The French woman filed her Dutch 2014 and 2015 income tax returns. She claimed zero value for the French property in Box 3. She claimed the French property was based on article 5.4 sub 3 of the Dutch income tax act not part of Box 3 assets. The tax office denied this request.
She appealed in court and the court rules as follows. The usufruct had not found its origin in the French inheritance act, but was a notarial deed not influenced by the inheritance act. That made the usufruct was not based on foreign inheritance legislation. Neither was the transaction based on a last will. That made the article 5.4 sub 3 claimed was not applicable.
Double tax treaty
We think the French woman started her battle at the incorrect place. She should have started with the Dutch French tax treaty. Such a tax treaty determines which country can tax what. Clearly article 6 of the French Dutch tax treaty states that properties on the French soil are to be taxed in France.
This French property you report in Box 3 as your property. You claim in the same income tax return a double taxation relief for this French property for the full amount. This is based on the French Dutch tax treaty. No tax was to be paid in the Netherlands in Box 3.
Maybe the French woman tried to be more clever than the system. The house would not be reported in a French tax return. The house would be in the Dutch tax return and then under article 5.4 sub 3 effectively not taxed in the Netherlands. If that was the idea to avoid paying tax in both France and the Netherlands, it failed.
Tax is exciting
We think tax is exciting. We can also get excited about claiming tax credits for you. The property article is in every tax treaty the Netherlands has signed with another country. We also think it is logical to have a property that is a burden on the soil of the other country to be taxed in that other country.