The non resident property owner and Box 3 are in the 2023 Dutch tax system hard hit. What is that about?
Non resident property owner and Box 3
The non resident property owner is a person that is not a tax resident in the Netherlands, but does own a property in the Netherlands. Often this situation was created by the person initially living in the Netherlands. Then a home was bought in the Netherlands, and then a job opportunity abroad called. Or children were raised in the home country.
The moment such a person has the availability of renting out the home they purchased, it is often taken, as a residential property in the Netherlands is a good investment.
With the availability is meant the approval of the mortgage bank that the property can be rented out. In every mortgage deed there is a very clear clause that states you cannot. But if you anticipated this option, or if you switched from current mortgage to buy-to-let mortgage, this clause is no longer there.
If you state you are a cash buyer, everybody assisting you gets excited. A cash buyer is a person that purchases the home without a loan. You might be teased to be treated like a King being a cash buyer. The Dutch tax office no longer treats you like a King, but as financial supporter of the King.
That said. If you are actually not a cash buyer, but you like to act like one, please come clean now, as that saves you a lot of Dutch tax. A fake cash buyer is a person stating no mortgage loan is required, but the credit line in the home country was already used for the purchase of the Dutch property. This foreign loan, if it can be connected to the purchase, reduces the Dutch taxation.
So what is new for Box 3 non resident owners
Till recently the calculation of the taxation was simple. You take the WOZ value, deduct the mortgage loan amount and multiply by about 1.2% tax and there you go. That is no longer the case. Rocket science is becoming child play compared Box 3 calculation.
Now the WOZ value is still taken into account, but you are assumed to have made a yield of 6,17% (2023) over that WOZ value as an income. The debt you have is taken into account for only 2,57%. The tax percentage is now 32%.
You own a EUR 400.000 WOZ value house and you have no mortgage, you are a cash buyer. Then you pay EUR 400.000 minus EUR 57.000 tax free amount is EUR 343.000 tax base. The tax rate of assumed income is 6,17% being EUR 21.163. This amount times 32% tax rate is EUR 6.772 income tax.
You own a EUR 400.000 WOZ value house and your rest debt on the house is still EUR 320.000. Then you pay EUR 400.000 minus EUR 57.000 tax free amount is EUR 343.000 tax base. Over this base you are charged 6,17% notional income being EUR 21.163. The EUR 320.000 debt is taken into account for EUR 320.000 minus EUR 6.800 threshold is EUR 313.200 and a 2,57% calculation is used as costs being EUR 8.049. EUR 21.163 minus EUR 8.049 times 32% is EUR 4.196 income tax you are to pay.
Let us assume you can collect EUR 1.500 per month in rent, being EUR 18.000 per year. And you pay 3% in interest over the loan is EUR 9.600, your income is then EUR 8.400 minus local taxes you pay. From that amount you need to deduct now EUR 4.196 Box 3 income tax. Something needs to give and that is probably the rental income. Suddenly you need to increase the rent with roughly EUR 4.196 parted by 12 months to break even with previous years result in this example.
We think tax is exciting. We also fear rents will go up. Are non residents losing money on their investment? Depends how you look at it. In the long run with the current housing market (shortage) and increasing population we assume the still tax free capital gain when sold makes it a good investment.