The profit of the sale of your home and box 3. A court case article about the result of selling in the one year and not fully buying in the same year.
Profit of sale of your home and box 3
The home you own that is your main residence in the Netherlands, is in Box 1. Box 1 is the tax box in which your income is taxed. Income such as salary, profit and trading that exceeds normal asset management.
A deductible in box 1 is the interest paid for the loan that was engaged to purchase your main residence. Also interest paid on a loan for refurbishments is deductible as well.
The moment the home is being sold and there is a profit, the profit is not taxed. That said, the moment a new home is purchased, you are to invest this profit made, in the new home. If that is not done, there is no mortgage deduction for the part of the loan equaling the value of the profit.
So far you have not noticed anything about box 3. However, if you sell your home and you make a profit, this is received on your bank account. The moment you have not reinvested this profit in a new home on January 1 of a year, this value is part of your Box 3 taxation.
In the year 2022 the assumed yield on money in the bank is 0,00% times 32% tax. A wonderful Government invention. However in 2017 the taxation was 1.2%.
Court case home and Box 3
A lady had sold her property and made a profit. In 2016 she agreed with a builder, to have herself build a new home. Builders tent to invoice you as the build is progressing. Also in this case.
The build started in 2016, but was not finished till 2017. The agreed sum was EUR 138.500 for the total and in 2016 EUR 73.231 was paid. Hence the difference, EUR 65.269, was still due. This money was sitting in her bank account.
January 1, 2017 is a reference moment for the 2017 Box 3 taxation, hence the tax office taxed in Box 3 the EUR 65.269. The lady disagreed, as it was not a savings amount, it was a near future obligation to the builder. The Dutch tax office disagreed.
The lady went to court and there she claimed she committed herself to a EUR 138.500 obligation and therefore the EUR 65.269 in her bank account was actually no longer hers. It was connected to the house being build, which house was to become part of Box 1 taxation. Hence no Box 3 tax could be levied.
The court ruled that the money in her bank account were a result of the sale of property she owned. The lady is free to touch the money, she could even decide to spend the money on something different that the build. That would then imply she needed a loan after all. The point of the court was that the money could not be labelled as blocked for the build, hence taxed in Box 3.
Tax is exciting
We think tax is exciting. Going to court for 1,2% tax over EUR 65.269 being EUR 783 we find a bit silly. Probably the costs for the court case very much exceeded the actual taxation.
Some clients selling the house in the one year and purchasing the house in the following year suddenly find tax much less exciting as well. They have the same opinion that the money is not free to be spend by them, as Box 3 taxation is about. It is a future commitment to the purchase of the Box 1 house.
We understand the reasoning, but that is not how taxation works. And if you out clever by already depositing the full amount of the next year purchase on the Notary escrow bank account is also not a solution. The notary is obliged to display what is still owned to clients. That is a receivable to be mentioned in Box 3.