House in the Netherlands in Box 3 and not Box 1 if you live abroad. That is a no brainer. Still a non resident tax payer gave it a try to get the house in Box 1. Here is the story.
Boxing system in the Netherlands
We have a boxing system in the Netherlands. Box 1, 2 and 3 to simply the Dutch tax system, which is far from simple. In Box 1 you report your employment income, freelance income, alimony income. And we have a limited number of deductions. A mortgage deduction and a charity donation deduction. The medical deduction nearly nobody qualifies for.
In Box 2 you report income you receive on a participation you hold exceeding 5% or more in a company.
In Box 3 you report the cash in your bank and investments you hold in the world. If you are a Dutch resident tax payer. Non resident tax payers report Dutch property they own in this Box.
The house is taxed in Box 1
The house you own is taxed in Box 1 when you are actually living in the house. Or you purchase the house, but you are renovation the house, or the house is being build. If that period does not exceed three years, you can deduct the costs related to the loan you took out for the purchase of the house in Box 1 from your income. That is in a nutshell the house in Box 1 for this article.
The house is taxed in Box 3
The house you own is taxed in Box 3 when it is located in the Netherlands. The owner is a tax payer abroad. This house is not the house you live in.
The taxation of the Box 3 house is not a deduction as in Box 1. No, you are supposed to have made 6,17% yield on the house which is taxed at 36% income tax. The basis of the 6,17% is the WOZ value. The WOZ value is the value set by the city on basis of which local tax is collected.
A possible debt taken out for the house is also taken into account as a deduction. However only for 2,28% times 36% tax, with a small threshold.
You can understand that the preference is to hold the house in Box 1 instead of Box 3. But the condition for Box 1 is that this needs to be your main residence. The following court case is about that fact.
Court case house in Box 1 instead of Box 3
The tax payer purchased in July 2011 a new build property in the Netherlands. However, till October 2021 this tax payer was living in Germany. In October 2021 he returned to the Netherlands to live in the purchased new build property. During the period from new build to October 2021 the house was not rented.
In the 2017 and 2018 income tax return the tax payer reported the house in his Dutch income tax return in Box 1. The tax inspector disagreed and moved the house to Box 3.
The tax payer disagreed and appealed in court. In court he stated that the house was purchased to become the main residence for his wife and himself. The house was made wheel chair friendly for the wife. It turned out that the medical facilities in the neighborhood of the new build property were not sufficient for his wife. In Germany the facilities were better, hence they stayed in Germany.
Only after the wife passed away the tax payer moved to the house in the Netherlands.
The court ruled that the house build in July 2011 could have been a Box 1 house in the 2011 tax return and the three years following the year 2011. The court also determined that the house was finished and furnished in 2013. Moreover, an explicate choice was made to remain living in Germany. This implies the Dutch new build house was not the main residence. The main residence is a criteria for Box 1.
Based on the above the court ruled that the Dutch new build house did not qualify in the years 2017 and 2018 as a Box 1 house.
Tax is exciting
We think tax is exciting. We also agree that nothing is exciting about Box 3 taxation. Therefore we understand the effort of the above mentioned tax payer to try to get the house taxed in Box 1.
Then again, in order to be able to tax the house in Box 1, you need to meet the criteria. When none of the criteria have been met, it cannot be taxed in Box 1. That would be too simple. And opens for everybody owning a house in the Netherlands that is not their main residence to move that to the much more favorable Box 1.
The bottom line is still, if you want to make a claim, you need to life up to the claim, otherwise it is denied.