Gift tax in marriage?

Entrepreneurs deduction (zelfstandigen aftrek)

Gift tax in marriage. Have you ever considered the gift you gave your partner for the birthday or any day are subject to gift tax?

Gift tax in marriage?

Neither have we, but the Dutch tax office has a totally different opinion. Their opinion is so strong. Now the high court stated to fully disagree with their opinion, the tax office is lost for words.

Gift tax in marriage – court case

The court case does not state the ages of the persons involved. We happen to know that the man was rather old and rich and the woman much younger and not rich. Very sorry for this rather typical traditional dream situation for some men and some women.

The man and wife created terms of the marriage before the marriage was executed. In these terms the wife would gain no part in the inheritance of the man in case of a divorce, and vice versa. During 2008 they married and the husband opened a joint bank account and a joint share account. In the joint bank account he deposited 10 mln euro. In 2012 he died.

The tax office took the standpoint that the EUR 10 mln was in fact a gift for 50% to the wife. Hence they made a claim of gift tax over EUR 5 mln. In 2012 the gift tax rate was 20% for partners, hence the tax office claimed EUR 1 mln gift tax.

Gift tax in marriage?
Gift tax in marriage?

Court procedure

The wife went to court to argue that money or goods going back and forth in a marriage cannot be regarded a gift. The courts up to and including the high court agreed. A marriage is engaged for all kind of reasons, but avoiding gift tax is not one of them.

Moreover, the balance of the bank account could have been consumed by them together or the husband could have out lived the wife. In other words, the balance of the joint account could never have been predicted at the moment of death of the husband. That is required, in order to meet ‘the will to give’ requirement, for a gift.

Gifts  between partners

In the situation one partner earns the income and the other does not. The items purchased such as clothing and what have you, are not considered as receive a gift from the working partner. Nor does the working partners see this as a gift, but as costs of the household.

To put it more simple. The money going back and forth in a marriage is never thought of by anyone as a taxed situation. The money is meant to operate the household and other aspects in the marriage.

The difference for the tax office to be triggered this time is the age and the amount involved.

Tax is exciting

The above situation in which partners would like to allocate some aspects between each other. It is important to actually be or remain tax partners. In the year of divorce there is a choice offered by the Dutch tax office to remain the full year tax partner. Even if you were divorced during the year. The separation in which one gets the house and the other the dog is than done from a tax point of view the most friendly manner.

Work in Dubai and live in the Netherlands, is that wise?

entrepreneur

Certainly not. Work in Dubai and live in the Netheralnds is not wise. Dubai is tax heaven, the Netherlands is not, even though we are still very much excited about the Dutch tax system.

Work in Dubai and live in the Netherlands

A frequently asked question and is that wise? It certainly is not. Dubai does have much better weather and an even better tax rate of roughly zero percent. This attracts Dutch tax residents to work in Dubai.

How to prevent working in Dubai at 49,5% Dutch tax  rate?

The thing about work in Dubai and live in the Netherlands, you are a tax resident in the country where you have your central point of life. Your central point of life is where is your family, your house, your car, where your navigation states home (really!), where you purchase your groceries. If you simply travel to Dubai without making changes and returning every other week, you pay Dutch tax over your Dubai income.

What acts like an anchor to the Netherlands?

An anchor to the Dutch tax system is both your tax partner and the house that is your main residence owned by you.  That is a lethal combination if you no longer want to pay Dutch tax over your Dubai income.

The Dutch tax office has the opinion that the Dutch house that is owned by you and still used by you in which your tax partners is living, makes you a Dutch tax resident regardless. That is our experience from many battles we have had with the Dutch tax office about fiscal residence. Every time the Dutch tax office won from the other nation in such a situation.

Work in Dubai and live in the Netherlands, is that wise?
Work in Dubai and live in the Netherlands, is that wise?

If you want to move to another country to pay less tax, move to that other country to pay less tax. That is the message. That implies you cannot use your house as your main residence. The house as main residence implies a mortgage deduction.

That also implies your tax partner needs to move with you. Our experience is that never every tax partner is not willing to spend time in the desert for no money or tax credits.

I divorce my tax partner for tax purposes

That is supported by some hardline tax advisors. By divorcing your Dutch tax partner for tax purposes only, you can work in Dubai, and pay the Dubai tax rate. Of course you travel to your former tax partner, as you only divorced for tax.

We are more practical tax advisors. Does your tax partner also understand this is for tax purposes only? Or a cheap way to divorce. And if all is done formal, what will your tax partner hold back from a true divorce once your pension capital is displayed.

We think a divorce is not a tax solution and it could back fire to you more than the tax advantage.

Tax-is-exciting

We think tax-is-exciting, we understand many find it not exciting. The rule is, when you want the other nation tax rates, you need to move to that other nation. Often there is a reason for low tax rates, as there is more to life than only tax. Which we ofcourse will deny when asked, as tax is exciting.

Who is your tax partner?

Tax Tax Tax

In the Netherlands you can jointly file a tax return with your tax partner, or use tax credits with your tax partner. Who is your tax partner?

Who is your tax partner?

Your tax partner is the person with whom:

  • You are married; or
  • You are registered partner with at city hall, registered via notary
  • You have children
  • You own the house that is your main residence
  • You are mentioned in the pension facility of your employer as partner beneficiary.

Who is not your tax partner?

Your tax partner is not the person with whom:

  • You are living together in a rented house, and you qualify for none of the points mentioned above
  • You arranged the residence permit with, so you can come along as well or you can bring your friend with you on your residence permit
  • You are married, but your partner prefers to stay in another country
  • You are registered partners or you both own the house together, but you have not been registered at the same address for at least 6 months
  • You are living together and the children are not born out of this relationship
Who is your tax partner?
Who is your tax partner? This is my tax partner.

Who can also be tax partner?

You are also tax partner with:

  • Your brother or sister if you both own the house your life in. You cannot be partner with a third brother or sister.
  • A friend that is not your lover, with whom you purchased the house you both live in
  • Your ex-husband of wife of whom you have divorced you can still be regarded tax payers in the year of divorce for tax purpose.

Why is it important to know who is your tax partner?

In the Dutch tax legislation the tax partner is one definition, but used in all tax rules and regulations. So you might find it interesting not to be tax partners for Box 3 wealth tax, so that the other person only pays wealth tax. But then if you live together also 50% of the mortgage deduction can be applied, as you stated not to be tax partners. Then if you or your partner dies, you cannot use the tax partner tax free amount for inheritance tax, which is substantial.

It is therefore important to know what is your tax status in respect to the person you are living with.

Tax-is-exciting

We think tax-is-exciting. One of our initial questions to our clients is where they are a tax resident and if they have a tax partner. Often the unmarried partner with whom a house is rented is assumed to be the tax partner, which is not correct. The moment this couple purchases a house they do become tax partners.  So be aware who is your tax partner.

Sorry for the dashes in the middle of the word tax-is-exciting. Apparently Google has a dirty mind and sees only a three letter word that we refer to when we practice to reproduce ourselves. Anything related to that word is spam, hence this devout solution.

Is your partner your tax partner?

Having a partner, does not imply you have a partner for tax purposes.

When is your partner your tax partner?

Based on the Dutch tax legislation you are regarded tax partners when:

  • You are married
  • Registered partner via a Dutch notary
  • Own a house together that is your main residence
  • Have children together
  • One is mentioned in the others pension insurance policy.

That implies when you have a girlfriend for over 20 years, you are not necessarily regarded tax partners. Without children, house or pension  you are certainly not regarded tax partners.

Tax partners by orangetax

What is the consequence of being a tax partner?

You are obliged to file a tax return jointly. The reason for this is that you can swap tax deductions between each other, and for that both tax returns need to show the same. And one of both can report the Box 3 wealth tax, but if it is more convenient to split the wealth tax, then the split should match in both tax returns. Both tax returns need to show in total 100% of the deductions or wealth tax.

Having two houses?

Some tax partners have two homes in the Netherlands. That could have occurred due to the life lead before they became tax partners. It can be attractive to claim that both houses are your main residences and that you deduct the costs of the mortgage from both houses in the income tax return.

The tax office has an answer for this situation. Either you chose or you lose. So you chose which house is the main residence, it cannot be both. And if you do not chose, you cannot deduct any of the costs of both houses.

Is this always the case? No. When you purchased another house and you would like to do some decorations to the new house. This decoration or building period can take max three years. Then you move from the old to the new house. Maybe you are not able to sell the old house that easily. As long as the house is empty and actually put up for sale, you can deduct the mortgage costs for a max period of three years after you left the house to move. The moment the three years have been exceeded, the house goes to Box 3.

One partner lives abroad, tax partners?

You are partners, are married, or registered partner, and or have children, own the house in the Netherlands where the family is living. Then one goes abroad. Are you then still tax partners? The basic rule is that you cannot be tax partners if one lives abroad. However, if that person living abroad earns at least 90% of his or her income in the Netherlands, you can you can still be regarded tax partners.

You can only have one partner

You are married, but the marriage no longer works out for you. You leave your wife, but you have not filed for divorce yet. You had a rebound relation and that girlfriend became pregnant and you have a child together. But the real love of your life is the person with whom you are now together and with whom you purchased a home.

 

That implies you can be regarded a tax partner with the person you are officially married. You can be regarded a tax partner with your rebound relation based on the fact that you have a child together. And you can be regarded a tax partner with your current relation based on the fact you own a house together.

The rule states you can only have one tax partner. Who will it be?

The partnership based on the marriage ends the moment the request for a divorce has been filed. However, you need to be registered at the address of your married wife with city hall. That implies when the address with city hall was not updated, he is being regarded a tax partner with the person to whom he is married. Most of the time you are automatically registered with city hall in the house you recently purchased, that would solve the issue.

Orange Tax Services

We file tax returns of tax partners jointly. The tax partner is included in the fee. Often it concerns the non working spouse who can claim a refund. Often both partner work and the deductions are allocated to the one with the highest income. The highest income pays the most income tax, hence a higher refund is a result. Private income tax returns we file for EUR 370 incl VAT and entrepreneurs income tax returns we file for EUR 500 ex VAT.