Dutch tax on gifts and inheritance after you left the Netherlands?

Postal service and tax

Dutch tax on gifts and inheritance. You think after you left the Netherlands that that was the end of the Dutch adventure. Well, not entirely. The inheritance and gift tax law has a second wind to your adventure.

Dutch tax on gifts and inheritance after you left the Netherlands

What is that about? Article 3 of the gift and inheritance tax law states the following. A Dutch national who has left the Netherlands. And therefore is no more Dutch tax resident, will remain treated for gift and inheritance tax purposes as if he or she has not left the Netherlands for a ten year period.

The same article states for non-Dutch nationals that this period is maxed to a one year period.

What can be the reason for this act?

The reason is very simple if you ever took the time to take notice of the gift tax rates the Netherlands applied to children. To grandchildren the rates are nearly double and to other persons even higher. In the event you have wealth and no obligations to come to work every day, you could decide to move temporarily to another country. While you reside in that other country, you can give under the local much more favorable gift tax rules, if applicable at all, your children part of your estate. Then you return to the Netherlands and life happily ever after.

That is exactly what the Dutch tax office does not want to happen, hence the 10 year period has been installed for Dutch nationals and a 1 year period for non Dutch nationals. Why non Dutch nationals are to comply with a 1 year period, even if they only spend a short period of their life in the Netherlands, we have no idea about.

Dutch tax on gifts and inheritance

Inheritance tax is like gift tax

The gift tax rules with the 10 year period could be justified. The majority of the Dutch tax residents do not agree with, do not like, or do not understand why gift tax should be paid. If you then see the gift tax rates applied, little is required to get the Dutch creative. Creativity is killed by the 10 year period.

Inheritance tax is different I think. Dying is something often not planned. Dying is not always expected and if you know you are going to die due to a decease, acting tax efficient is not on your mind. So the 10 year period for inheritance tax we find difficult to understand. We think that should be limited to 1 or 2 years, simply to avoid wealthy persons to ask the hospital bed to be moved over the border.

Any excitement in this field?

Dutch tax on gifts and inheritance. We are not so much excited about the dying part, but the giving part could be interesting. Every year you can donate tax free to your children per child EUR 5.515. That sounds maybe not as a lot, but if you do this every year and you have three children, by the time they are 18, it is a substantial amount.

Between the age of 18 and 40 years old the parent can increase one time the EUR 5.515 amount to a EUR 26.457 amount instead. If that is done, a gift tax return needs to be filed, to claim the exemption.

In the same period the parent can give EUR 55.114 to their child for an expensive study. Or EUR 103.643 for the purpose to be used for the house being the main residence of the child. The latter amount can also be given by grandparents, aunt or uncle, brother or sister. And it can also be done the other way around. So the grandchild giving tax free to the grandfather the website of the tax office shows. If that is very tax efficient, we have doubts about, as when the grandfather eventually dies, you end up paying inheritance tax over the gift you gave to your grandfather in the first place. Then I would keep it with a loan to your grandfather.

Tax is exciting

Dutch gift and inheritance tax rules and regulations do not give a lot of excitement we need to agree with. However, the annual tax free amount we are super excited about. If you start now when your children are young you are not too late yet. Donate into their bank account which you keep of course very secret to them. By the time they go their way in life, you have something to surprise them with.

Holidays, family, gift tax – goes hand in hand

We can only assume you cannot wait to go for the holidays abroad and visit your family. You enjoy the meal, have a coffee and while some are doing the dishes, you, you pop the question: “Dad, ever thought about gift tax?” – Tax is exciting!

Gift tax

Gift tax is a subject that comes up once in a while and often that is when family meet each other over the holidays. What happens if you were to be given a gift from your parents? The first question asked to us is about tax. But my first reply is about siblings, do you have brothers and sisters? If the answer is yes, the following question is: do they get the same gift?

Indeed not a tax related question, but if one part of the family gets an advance on the inheritance and the others do not, by the time the inheritance takes its effect, family relations are not good. If you are indeed the only child, please accept the gift.

The main rule is that if you get a gift, the gift is subject to gift tax in the country where the person giving is living.

gift tax
gift tax

Inheritance tax

Inheritance tax is for some reason never a topic during the holidays. Nobody wants to spoil the holiday mood. That said. Inheritance tax is in line with the gift tax legislation, which implies that the country where the person deceases, is the country that will tax the inheritance. If you then think you can push the hospital bed over the border into another country with lower inheritance tax rates, just before the last breath leaves the body, that will not make a difference.

Inheritance tax legislation is keen on creative actions before death. Gifts done during 180 days before death are nullified. The person going to decease can move country to a lower taxed or no inheritance taxed country. But if the person moves less than ten years from the Netherlands and dies, the Dutch tax office will tax the inheritance.

No gift, a loan

In the situation you are indeed not the only child but you have brothers and sisters, we recommend no gift, but a loan. If that is put in writing, the tension over the inheritance is less.

Family loan and tax

If your family provides you with a loan to purchase a house in the Netherlands, or to contribute to the purchase, as the mortgage is not good enough on its own, then this could be interesting. When the loan is made in a manner that the loan is paid back in a max 30 year period and interest is paid over the loan. When the loan was used for the purchase of the house, the interest is tax deductible.

If the family is reluctant to provide you a loan, as they want security for the amount loaned to you, the notary can put a mortgage on behalf of the family on the house. That said, if there is also a mortgage bank providing a loan, the mortgage bank will have first rights on the assets.

Orange Tax Services – tax is exciting

Tax is exciting, gifts are exciting, inheritance is often the consequence of death, not exciting. Death and tax go hand in hand if you refer to certainties in life. With gifts and inheritance this is no different. Rules are in place where a gift or inheritance is taxed.

House for studying child

Your pride and joy is going to study, either from abroad in the Netherlands or a Dutch boy or girl studying in the Netherlands. Of course the study is done far away from mum and dad, but at the same time mum and dad are called in to help finding some affordable and clean housing.

Purchase a house for studying child

Mum and dad decide to purchase a house or apartment for their children so they can study while living in a place that is also under their control. Besides helping your child, the purchase could be a good investment.

student house orangetax

Whether you purchase the house as Dutch resident tax payer or non Dutch tax payer does not make a difference. Based on local law and the Dutch tax treaties the house is taxed in the Netherlands. The house is taxed in what we refer to as Box 3. In Box 3 the value of the house is taxed at 1.2%.

The value of the house is determined by the local county who allocates a so called WOZ value to the house and based on that value the tax is being calculated.

Is this the best method tax wise?

We think not. If you would have your child purchase the house with a loan you provide, the ownership and the taxation is with your child. The house is used as the main residence of your child, hence the house is no longer taxed on the side of the parent in Box 3 at 1.2%. The house is now taxed in Box 1 with the child.

In box one the child can deduct the interest paid to his or her parent over the loan taken out to purchase the house. The interest percentage that has been decided on between the family is based on what is the percentage in the market. The note we need to make in this respect is that the court has decided in the past that you do not need to make the mark up profit with your child. That implies the interest percentage can even be lower.

If you register this loan with the Dutch tax office and that is only possible when the loan meets the criteria set by the Dutch tax office, then the loan is accepted for your children as a Box 1 loan for the house.

Your studying child needs to have a job in order to actually benefit from the tax discount of the loan for the house. That implies that over the little money they earn while studying they get a tax refund due to the house they own.

Inheritance tax

Not only has the suggestion made above prevented that the parent pays Box 3 taxation over the house, your child has a tax deduction. The beauty of the situation is in the inheritance tax. The parent can donate a part of the loan every year. Either tax free, within the EUR 5000 tax free gift amount, or gradually in higher amounts an then some gift tax is due. So while the value of the house might go up, the loan amount stays the same and that loan amount is repaid with gift tax only. This is a cheap transfer of the assets of the parents to the child. We need to add that if you have more children, you need to do the same with the others. Not from a tax point of view, but more to prevent trouble in the family.

In the event the parent is not living in the Netherlands, the above still applies, however, the rules in the country where the parent lives determine whether or not gift tax is due over the loan amount being donated to the child.

Why is this not possible when the parents purchased the house?

If you donate a part of the house to the children, you have to visit each time the notary, have a deed made of transfer and pay transfer tax. Plus the value of the house could go up, so you are paying gift tax also over the increase in value. Therefore the method of purchase and donation is not one that is effective in any way.

Orange Tax Services

We assist foreigners who own property in the Netherlands. If you own property in the Netherlands you are required to file a non resident income tax return if the value of the house exceeds a possible loan taken out to purchase the house. We learn that most foreigners do not loan at all to purchase property in the Netherlands, which implies immediate tax is due over the value.

The value of the house is taxed in the first of January of each year. That implies that when you purchase the property after January 1 of for instance 2016, you do not need to file a Dutch non resident tax return till 2018 over the fiscal year of 2017. It was only January 1, 2017 that you owned the house for income tax purposes. This 2017 income tax return can only be filed in 2018.

We will be glad to assist you in filing this income tax return, we use a fixed rate, equal to the rate we charge for domestic income tax return. Looking forward to your message.

Extreme rich tax payers will be audited

The OECD, the international organization helping Governments tackle the economic, social and governance challenges of a globalized economy, advised the Dutch Government to focus more on the extreme rich Dutch tax payers.

What is an extreme rich tax payer

Apparently an extreme rich tax Dutch payer is a Dutch tax resident with an assets exceeding EUR 25 mln. In other words, this list starts at a lower amount than the Quote 500 does. Maybe the Dutch tax office thought 500 was a small number to focus on. Each extreme rich Dutch tax resident will be appointed one person within the tax office that will audit or monitor the fiscal behavior of this rich person.

extreme rich orange tax

Extreme rich persons thing ahead

In the OESO advise was clearly stated that the more rich persons think well ahead. They are actively doing tax planning with respect to assets, inheritance, profits etc. Of course you need to have assets in order to plan ahead, but planning ahead made me think.

Why would you not plan ahead?

What is good for the (extreme) rich persons is good for you. My experience is that we receive pin point questions about a situation mostly after the weekend, thought up at the kitchen table undoubtfully, without taking into account any of the fiscal rules. If we could help them with that. When we respond that we are confused about the reason why this is being done, as there is no fiscal advantage, it becomes silent. Never to hear about it again.

That is not the way to follow.

What should you do?

Simple answer. Spend some money on your tax advisor by having a meeting. Initial meeting does not need to last longer than about one hour, you pay for the service. At the end of the hour you have learned what are the possibilities and what not. If you have no possibilities, that is good to know, as well as having some opportunities looked into.

That is how the rich persons make use of rules and regulations, using the services of persons that have made that field their expertise.

The Dutch Government does the same. They have the OECD help them out how to make the Dutch tax system more profitable for them. This time the extreme rich are put under a magnifying glass. Extreme rich tax payers will be audited

Contact us today

You can save on inheritance taxation, but when your relative has deceased last week you are too late. You need to think ahead, plan ahead and you can only do that if you have the knowledge about what to do. Feel free to contact us to set up a meeting and we discuss with you what are opportunities and what not. Extreme rich or not.

How is property investment taxed in the Netherlands?

Dutch property is on demand with foreign investors. Some purchase real estate for their portfolio, others for their children to go to college or nostalgia reasons.

Taxation on property

If you live for instance in China, United States of America or the United Kingdom (random examples) you can purchase either cash or with a loan property in the Netherlands. Living abroad and investing in Dutch property makes you a non resident tax payer. You are liable to Dutch tax only for the property in the Netherlands. How is property investment taxed in Holland?

The valuation of the property is done by the local city hall. The council determines the value of real estate and this value is announced in a so called WOZ statement, and the value is referred to as WOZ value. This WOZ value is the base of all taxation related to that property. Every year early in the year the WOZ statement is issued and from that moment you have six weeks time to complaint against this value incase you have solid reasons why the value is incorrect.

A non resident tax payer is subject to 1.2% tax over the WOZ value minus a possible loan taken out to obtain the property. If no loan was taken out, then 1.2% over WOZ value is it. Rental income is disregarded, so are costs related to the maintenance of the property.Property investment

Double taxation relief

Back in your home country China, or USA or the UK you have to report your world wide assets. These countries are randomly choses, in other countries we have a tax treaty with the same applies.

The world wide assets you report is including the property you own in the Netherlands. The tax treaty with the Netherlands determines that your Dutch property can only be taxed in the Netherlands. If the Dutch property is included in your home country tax return, you need to claim a double taxation relief in such a manner that you pay nothing in your home country for the Dutch property.

BV company holding the property

Creative minds have thought up creative methods to hold the ownership of Dutch property. One of them being a BV company. Non residents suggest to incorporate a Dutch BV company which then will hold the property.

There are some issues with this structure. The first being that a BV company is tax resident in the country where the managing director is living. As you are living abroad, the BV company is situated in your country. That creates undesired issues tax wise.

If you arranged for domicile in the Netherlands by using a Trust company you can have the Dutch BV company own the property in the Netherlands, as the Trust company is assumed to be the resident managing director.

One issue solved. Another issue is that a result made by the sale of the property in the BV company is subject to capital gains tax, this is not the case if the property is owned by you personally directly.

No capital gains tax

In the Netherlands we do not know capital gain tax for private individuals. Making a profit with sale of share, stocks, options, real estate is of no fiscal interest. Taxed is the economic value or in case of property the WOZ value as per January 1 of the fiscal year.

Orange Tax Services

We will be able to assist you with your fiscal liability as non resident tax payer in case you purchased property cash or when the WOZ value exceeds the value of the debt taken out to purchase this property.