There is exactly a month left until the end of 2022, and it can be used to absolutely legally reduce your future payments to the budget. In this article, we will tell you what steps can be taken to reduce the taxable base for Boxes 3 and 1 of the annual declaration of an individual reporting in the Netherlands. Some possible measures to optimize tax payments in these boxes are the same, but we decided to divide them into two subsections. The difference is whether to reduce tax payments from savings and investments - or from the money earned this year.
How to cut taxes on Boxing 3?
Box 3 taxes savings, investments, cryptocurrencies, checking account balances, and all real estate (with the exception of the only house you live in that you own/mortgage). Often a portion of the tax payments from Box 3 is referred to as the "wealth tax".
It is important to understand that according to the declaration for 2022, payment will be made already in 2023, however, taxation is made on investments and savings that were available as of January 1, 2022. Therefore, it may now make sense to optimize the balances for these categories as of December 31, 2022, in order to pay less according to the declaration already for 2023. More information about Boxing 3 taxation can be obtained from in our webinar series.
The maximum amount of property related to this box and not taxable in 2023 is 57 euros for a single person and 000 euros for fiscal partners (in 114, these amounts are 000 and 2022 euros respectively). It often makes sense to reduce savings and investments to or below this level.
An additional incentive for this is provided by those residents of the Netherlands who receive a housing allowance (huurtoeslag), a health care allowance (zorgtoeslag) or a child allowance (kindgebonden budget). “Extra” wealth can become an obstacle to receiving these benefits, and even one extra euro in your account can block access to state assistance.
Here are 7 smart ways to reduce the amount of property taxed under Box 3:
-
Make additional mortgage payments
Before using this method, you need to carefully study the loan agreement - sometimes fines are imposed for depositing additional funds. Most creditors allow you to exceed the payments established by the agreement by 10-20% annually. You need to make sure that the additional payments you plan are economically viable, but otherwise this is an excellent method. Instead of having money lying in accounts at extremely low or even zero interest rates, you will save on taxes and reduce both your total debt and your monthly mortgage payments. It is especially beneficial to pay in advance the interest accrued on the body of the loan.
Keep in mind that by lowering your mortgage costs, you may be able to get fewer tax credits on those costs in the future. Other problems may arise, for example, when applying for a new loan to buy a second home. Get advice from a mortgage specialist!
It should also be borne in mind that the money invested in real estate cannot be quickly returned. Make sure you have enough free funds to deal with problems that may arise in the event of loss of income, layoffs, illness, or other unforeseen events.
-
Make big planned purchases now
If you are planning to buy a car or other large expenses, make them before the end of 2022: this way you will reduce your “wealth” in the form of cash balances in your current account and reduce the possible tax on it. The main thing is to acquire really necessary goods and services, and not just get rid of money.
A good investment option is the purchase of services and goods / equipment related to energy saving. So you will not only reduce taxes on Box 3, but also save on energy resources, which are rapidly rising in price.
Another advantageous option is the prepayment of medical insurance premiums: you can not only reduce tax payments, but also receive discounts when paying for the policy.
In addition, donations can also be provided. If a number of conditions are met (for example, if the amount of these donations is at least 1% of your annual income and at least 60 euros, etc.), these funds can be exempt from taxation (you can read more about donations and conditions for them in our article).
-
Give tax-free money
First of all, we are talking about helping children. In 2022, parents can give their child 5667 tax-exempt euros (this amount is determined to be common to both parents). Gifts from other persons have an upper limit of 2274 euros per year. In addition, parents can give a child under the age of 40 a lump sum of up to 27 euros - these funds are tax-free and can be spent freely. If you need expensive education for your child (aged 231 to 18 years) in the amount of at least 40 euros, parents can transfer to him a one-time fee up to 20 euros, exempt from taxation under certain conditions.
We should not forget about jubelton - this is a tax-exempt gift to your child (his age must be from 18 to 40 years old) for the purchase or renovation of a house. It is important to remember that jubelton will be canceled soon. In 2022, the maximum amount of jubelton is 106 euros, in 671 the amount of jubelton will be reduced to 2023 euros, and in 27 jubelton will be completely abolished. You can learn more about canceling jubelton from our article.
Before making gifts, get legal advice to make sure that this assistance does not make the child “too rich” in the eyes of the tax authorities and does not deprive him of the opportunity to receive various deductions, surcharges and benefits. You can book a consultation at Nalog.nl.
-
Pay off your debts
Some people in the Netherlands believe that having debts is beneficial, as they are deducted from the value of property subject to Box 3 taxes. However, the "benefits" of debt are not obvious. Interest on loans, as a rule, significantly exceeds the interest on money saved in accounts. In addition, the amount under Box 3 can only be reduced for those debts that exceed the threshold of 3200 euros (for fiscal partners - 6400 euros). You can read more about tax (fiscal) partnership on our website. Some debts, including tax debts, are not deductible at all. Paying off your maximum debt by January 1 will help reduce your capital and save on taxes.
-
Reallocate Assets
Until 2021, the Box 3 wealth tax depended solely on the total amount, their distribution between investments and savings was not important. Now everything will change: from 2023, the tax authorities will look at the actual distribution of funds among these two large groups.
Until 2026, tax authorities will take into account fictitious returns instead of real ones. The Internal Revenue Service (for tax purposes) believes that in 2022 the return on savings is 0,01%, and on investments - 5,53%. Fictitious income accrued in this way is taxed at a rate of 32%. Perhaps, by the end of 2022, it makes sense to reduce the amount of investments, and put the proceeds into a savings account. And after January 1, the money can be used again for investment.
Important: the reallocation of assets will require transaction costs, and other consequences are possible: if you are not an expert in this area, get advice from a professional.
Or you can redistribute the funds by investing in yourself. Money deposited in an annuity savings account, investment account, or spent on an insurance policy is not taxable in Box 3.
-
Cash out your savings
In 2022, up to 3 euros (560 euros for fiscal partners) are exempt from taxation in Box 1120. It might make sense to just walk to the nearest ATM.
Important: Be sure to make sure that the commission charged by the bank when withdrawing funds does not exceed your tax savings.
-
Create a savings BV
The abbreviation BV (besloten vennootschap) in the Netherlands denotes a private limited company (which in general, but taking into account certain nuances, is similar to the legal forms of ZAO or PrAT known to us). Dutch legislation allows the creation of so-called savings BVs (spaar BVs), which deal exclusively with savings management. The amount deposited into the spaar BV account is excluded from the tax calculation for Box 3.
This method will require special knowledge - for example, you will have to submit reports to the tax office. However, with a large amount of savings, it is beneficial to use it. Consult a specialist about the advisability of opening a spaar BV by Nalog.nl.
What measures will help reduce tax payments on Box 1
The system of taxation of personal income in the Netherlands is quite complex (more details can be found here in our article). Box 1 includes income from work, as well as the possible “savings” of owners of their own / mortgage housing associated with the fact that they do not need to rent a home (and, accordingly, they will not have these payments).
If you fall into the population group with an annual income of more than 69 euros (for 398), then you will be charged 2022% as tax on the amount exceeding this threshold. BUT maximum mortgage interest deduction for the population of the Netherlands in 2022 is 40%, but in 2023 it will decrease to 36,93%. Next year, the threshold at which the maximum tax is charged will also change - it will increase, and instead of the mentioned amount of 69 euros per year, the threshold will be an income of 398 euros.
-
Make additional mortgage payments
Paying your mortgage interest early this year is especially beneficial. As we mentioned earlier, in 2023 maximum mortgage interest deduction will be reduced from 40% to 36,93% - accordingly, by paying now, you will save more than next year. Unfortunately, the IRS only allows 6 months in advance to make these payments, so savings are limited. In addition, creditors may not agree. The legislation does not oblige them to do this, but it's still worth a try.
-
Make changes to mortgage agreements
If you want to change the terms of payments under mortgage lending agreements, it is better to do this before the start of the new year. Just keep in mind that lenders may charge penalty interest and a fee for changing loan conditions. In addition, paid consultations may be required. Assess whether the savings will be less than the costs involved. The expenses themselves can, under certain conditions, be written off from the amount subject to taxation under Box 1.
-
Pay alimony (partially or fully) to former marriage partners
Due to the reduction in 2023 of the maximum percentage of deduction for alimony paid to a partner from 40% to 36,93%, it is more profitable to pay alimony in the current year - this way the savings will be greater. You can even agree on the payment of a large amount as compensation for the refusal of the former partner from alimony. Just keep in mind that at the next marriage or cohabitation, your ex-partner loses the right to alimony. In this case, he is not obliged to return the amounts paid to him “in advance”.
It should be noted that to use this method, the consent of the partner will be required, since he will have to pay taxes on the amount received. A situation that is partially unfavorable for a former partner can be resolved by placing money in an annuity account. Chat with your ex-spouse - you may be able to come to a mutual agreement.
-
Pay for expensive treatment this year
Health insurance does not cover all health care and treatment costs, often dentistry and physiotherapy are not included in the policy. Such expenses can be deducted from the tax base only if their annual amount exceeds the established threshold - the higher the income of a person, the higher the threshold. You can only deduct amounts that exceed the threshold. However, if your expenses are close to this threshold and you are planning to pay for expensive medical services (for example, the installation of a dental implant), it makes sense to receive and pay (from your account) this service this year in order to exclude the amount exceeding the threshold from the tax base. Use to calculate this threshold our calculator.
-
Donate to charity
Charitable donations under certain conditions (for example, if they exceed 1% of your annual income and exceed the amount of 60 euros, etc.) can be excluded from the Box 1 tax base. The exemption applies to amounts above the specified thresholds. If the amount of donations this year is below the threshold, it is possible to combine charitable contributions for several years. You can also share donations - the amount of the tax-exempt base cannot exceed 10% of your annual income. If you contributed more, the balance can be divided over the following years. More about charity - in our article.
-
Adjust the term for the transfer of ownership of real estate
If you sell or buy a home, the tax liability arises from the moment ownership of the property is transferred, so the seller and buyer may have conflicting interests. In principle, it is beneficial for the buyer to register the rights to own real estate before the New Year, i.е. back in 2022 to get a tax exemption. For the seller, if the proceeds are not invested in the purchase of another house or something else, it is more profitable to withdraw the property from his possession after January 1, 2023. In other words, if the proceeds from the sale (or part of them) will be the balance of the current account for 1 January 2023, they will be subject to Box 3 taxation. But such divergent interests do not always mean the impossibility of an agreement: talk with a partner in the transaction - perhaps you will come to an agreement.
-
Consider when buying a house if you are under 35
Homebuyers aged 18 to 35 are exempt from property transfer tax if they purchase a home up to the cap. In 2022, this limit is 400 euros, next year the limit will be raised to 000. For example, if you are going to buy a house for 440 euros, then by postponing the purchase to 000, you can save 410 euros in taxes.
-
Reschedule your NHG application to 2023
It is extremely beneficial to take out a loan to buy real estate with the National Mortgage Guarantee (Nationale Hypotheek Garantie - NHG). This option is a safety net in case of unforeseen events that may interfere with the payment of the loan - job loss, divorce, disability, etc.
If you are planning to use NHG, please contact it after the New Year. Starting in 2023, the cap on the value of homes purchased with NHG will be €405 for regular properties and €000 for homes with energy saving technologies. In 429, these limits are 300 and 2022 euros respectively. As a result, a buyer planning to apply for NHG in 355 will have a wider choice of properties. NHG's one-time guarantee fee in 000 will remain the same at 376%.
-
Consider the timing of the transfer of ownership when buying a second home
If such a purchase is included in your immediate plans, it is more profitable to register ownership of yourself as early as 2022. Next year, in 2023, the property transfer tax on homes that are not used by the buyer as the main residence will increase from 8% to 10,4%.
-
Hurry up to use jubelton
Jubelton is a tax-exempt gift to your child for the purchase or renovation of a home. The condition for exemption from tax is the age of the child - from 18 to 40 years. If you are planning such a gift, then make it in 2022: next year, the tax-free amount will be significantly reduced to 27 euros (from the current 231 euros), and jubelton will be completely canceled in 106.
Tax legislation in the Netherlands is quite complex. If you are not an expert in this field, ask for help to Nalog.nl.
Publication Date: 02.12.2022
