Renting out the house is the most frequently asked question during one of the expat housing seminars we are part of. Is it possible, is it doable?
Renting out the house
Renting out the house is not as easy as it sounds. Hence first we start with the legal part, the non tax, less exciting part. The moment you purchased the house for you to be your main residence, you took out a mortgage. The mortgage loan agreement explicitly states that it is forbidden to rent out the house.
Why is it forbidden to rent out the house? Mortgage.
The mortgage company offered you a loan with a certain interest percentage based on the risk analysis. The risk analysis was based on you living in the house. The moment this crucial part of the risk analysis changes, the offer no longer exists, hence the articles state forbidden to rent out.
Step one is therefore to go to your mortgage advisor and inquire about the buy to let mortgage options. You will learn that part of this conversion is repayment of the mortgage to under 70% of the purchase value. The interest will be higher due to a higher risk involved.
Why is it forbidden to rent out the house? City rules
The next step is to investigate in the city you are living what are the rules with respect to renting out your property. Many cities in the Netherlands have introduced rules to protect often young persons that would like to purchase a house. Rules that dictate to a certain amount of WOZ value (WOZ is valuation set by the city for tax purposes) need to be exceeded. If not, the buyer needs to occupy the property themselves for at least for a 4 year period. Hence investors cannot buy such property.
The moment your property is in this category, every city has its own category, you cannot rent out in the first 4 years you purchased the home. The city monitors this strictly.
Why is it forbidden to rent out the house? Transfer tax
The moment you purchase a property for your own home, you pay 2% transfer tax. Or if certain criteria have been met, you pay 0% transfer tax. The moment you purchase a property as investment, the transfer tax amount is 10,4% (2025). Soon this amount is reduced to 8% (2026).
Some think to outclever the system by stating that the property is purchase for own dwelling. However, no own dwelling, but rented out. We have seen already the tax office adapting to this situation. The moment the tax office notices the purchaser never registered as resident in the house, the 10,4% is still charged. Even if that is years later.
Renting out the house and income tax Box 3
Why are all investors selling their investments you wonder. The reasons are multiple. We start with the tax system.
We have Box 1, 2 and 3 in our tax system to simplify the system. The property not being your main residence is in Box 3, also known as the horror box. The tax rate in Box 3 is 36%, but over what amount?
The Dutch are world champion not reporting the correct income of a property, hence in 2001 the assumed yield was introduced. Currently over the property in Box 3 the assumed yield is 5,88% over the WOZ value. A debt reduces this assumed yield for 2,47%. Mind you, these percentages constantly change.
Example
You purchase a EUR 500.000 WOZ value property and took out a EUR 300.000 loan. Then the tax base is EUR 500.000 times 5,88% is EUR 29.400. This is reduced with EUR 300.000 times 2,47% is EUR 7.410. Over EUR 29.400 minus EUR 7.410 is EUR 21.990 you pay 36% Box 3 tax being EUR 7.916. That is EUR 660 per month. The first EUR 660 of rent you collect per month is for our Government.
The high court ruled this Box 3 taxation to be illegal
Despite ruling the assumed yield is illegal, unfortunately the high court introduced an unworkable alternative: unrealized gains. The high court ruled that the true result is the combination of rental income, dividend, interest, realized gains and unrealized gains.
In this housing market the value increase is so dramatic, that the unrealized gain will make any true result calculation less favorable compared to assumed yield.
Example
The 500.000 WOZ value house you purchased as the following year a EUR 540.000 WOZ value and you collect EUR 1500 rent per month.
The high court ruled that costs cannot be taken into account, hence your true result is EUR 540.000 minus EUR 500.000 is EUR 40.000 plus EUR 1500 times 12 is EUR 18.000. Total true result is EUR 58.000, which is not less than the assumed EUR 21.990 result in the example above.
Other reasons investors sell is the limitation on the rent asked and the current housing market that is excellent to cash on your investment.
Finally, not tax related:
How does a tenant treat your investment
Some who know me are very much aware I love cars, petrol type of cars. In respect of the renting out thing, I ask my clients if they like cars. Some instantly roll their eyes already, here he goes again. Most men passionately agree they do as well. Then I ask them if they would ever park their car under a try full of birds shitting at will. No client would park their car, if possible, under that tree. Then I ask: but would you park your rental car under that tree. All would park the rental car under the tree.
That is the point I would like to make. You treat your own home, investment, with care. The care that is not matched by your tenant. The emotional connection of your tenant with the home is not there, it is business deal. Rent is paid for the usage. Obviously the tenant should not destroy the property, there is simply less love for the building.
Tax is exciting
We think tax is exciting. We updated you about the mortgage rules, city rules, tax rules and possible lack of emotion with the tenant. Please take this information in consideration the moment you plan to invest in the Netherlands. As we cannot provide investment advice, nor do we have investment knowledge, it is very well possible despite all the pitfalls mentioned that investing in property in the Netherlands is profitable.
