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How is a second home in the Netherlands taxed? It is owned by a non-resident.

Question:
 
My client is thinking of purchasing a property in the Netherlands. They do not intend to rent out the property, simply maintain it for their own infrequent visits (maybe up to 6 times per year).
 
How will this property be taxed given they are UK domiciled and UK resident. Will the position be different depending on whether they have a mortgage on the property?
 
Answer:
 
Under the tax treaty between the UK and the Netherlands a property is taxed where it is located. So if your client buys a property in the Netherlands then the Netherlands will have the first right to tax this property. The UK will have to offer an exemption to prevent double taxation.

In the Netherlands not the real income from the property is taxed and the related costs are not deductible. Instead the tax is calculated based on the average value of the property minus the outstanding mortgage. Over this amount a deemed income is calculated of 4% taxed at a fixed rate of 30%.

Calculation:

Value property: EUR 200,000
Mortgage: EUR 150,000

Tax: 200,000 -/- 150,000 = 50,000 * 4% fictitious profit * 30% tax = EUR 600 to be paid

If you are living in the EU a tax free amount is applicable (EUR 24,437 in 2016). This would lead to the following calculation:

Tax: 200,000 -/- 150,000 -/- 24,437 = 25,563 * 4% fictitious profit * 30% tax = EUR 306 to be paid

So you can see that the mortgage will reduce taxation. If the mortgage is higher than the value of the property no tax has to be paid. The same answer is applicable if you are living in another country than the UK with which the Netherlands has signed a tax treaty, for example with all the EU countries and dozens of other countries.

 
 
 
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Comments (20)
Comment by vincent blancheteau on Tue, Jun 26th, 2012 at 1:27 AM
in this case, is the house to be declared in box 3 or box 1 (question 22, form c) and mortgage as schulden? thanks
Comment by arjan enneman on Tue, Jul 31st, 2012 at 11:52 AM
the house indeed has to be declared in box 3 since it is not their main residence and has never been. the mortgage indeed is declared under debts ("schulden").
Comment by Soulla K on Mon, Nov 2nd, 2015 at 3:11 PM
If a mortgage is taken out on another property in the Uk (e,g, remortgage of main residence in the UK) but used to buy the property in the Netherlands, can it still be deducted as a liability for Box 3?
Comment by Arjan Enneman on Thu, Nov 5th, 2015 at 1:10 PM
If the mortgage is taken out to buy the property in NL then it can indeed declared in box 3 to reduce your tax liability in NL even if it is given on a property in the UK.
Comment by zet on Wed, Dec 16th, 2015 at 12:56 AM
This 1.2% applies only for the 2nd (not main residency) home in the NL? I did not hear anybody paying this for the 1st home. Besides this 1.2%, the owner also has to pay the local property tax (based on WOZ)?
Comment by Arjan Enneman on Wed, Dec 16th, 2015 at 1:57 PM
Yes, the 1.2% only applies to properties which are not the main residence of the owner. So for you own house you don‘t pay the 1.2% in box 3. Instead the main residence is taxed in Box 1 (with deduction of the mortgage interest). There is also an exemption for box 3 (for 3 years) for properties which used to be the main residence but are now for sale and empty and for properties in which the ex-partner is living after the divorce (for 2 years). Local property tax indeed also has to be paid, but that is a municipality tax.
Comment by Brechje on Tue, Feb 2nd, 2016 at 6:04 PM
In the initial post above you mention that the UK will have to offer an exemption to prevent double taxation. Could you please (i) explain what method the UK will use to eliminate double taxation and (ii) whether this method (e.g. the amount of credit against UK tax granted?) would be affected by the new levy system in box 3 expected to become effective as of 2017?
Comment by Anne on Thu, Feb 18th, 2016 at 1:05 PM
If you are resident of Netherlands and have sold your 2nd property (vacation home) in Canada and have paid non resident tax in Canada on the sell, jow do you declare this in the Netherlands in order to also avoid double taxation? There is a tax treaty btw the 2 countries.
Comment by Arjan Enneman on Tue, Feb 23rd, 2016 at 12:08 PM
The sale of the property itself is not a taxable item in your Dutch tax return. You don‘t have to declare capital gains in the Netherlands. But the money you receive out of the sale will be visible in your Box 3 assets from 1 January of the following year (if it is still present on your bank account). For more info about box 3 see www.expatax.nl/box-3.
Comment by Arjan Enneman on Tue, Feb 23rd, 2016 at 12:15 PM
@Brechje. This knowledge base is focused on the legislation in the Netherlands. We do not answer questions about taxation in other countries. For that you may want to contact a tax advisor in the UK.
Comment by Ante GAGIC on Tue, May 31st, 2016 at 5:17 PM
Hello, I live and work in the Netherlands and work for a diplomatic body so I am tax free (geprivilegeerden). I bought a house and have mortgage. I live in that house. I intend to buy a 2nd house and rent it. How much tax would I have to pay on the house? Is it the 1.2%? Thanks
Comment by Arjan Enneman on Thu, Aug 4th, 2016 at 11:33 PM
The tax free status of a diplomat is only applicable to the income earned as diplomat. Tax will need to be paid on other sources of income like the income from savings and investments in box 3. This means that indeed the 1.2% is applicable.
Comment by Rafael on Thu, Aug 11th, 2016 at 12:43 PM
Hello Arjan, so far I live & work in NL (under work permit, 30% ruling) and I‘m planning to return to my base country soon (Russia). I‘ve an apartment in NL & now I‘m renting it. How much tax would I pay on both: property & rental income when I‘ll become non-resident? & in case I buy 2nd house and rent it as well... What I should expect? Thank you.
Comment by federica on Sat, Sep 10th, 2016 at 9:37 PM
Hello, next year I will buy in cash a second house in Amsterdam ( I already own one with no mortgage where I live) and I intent to rent this house with AirBnb or something similar. How much more or less will be the percentage of taxes on the second house? And in case of a third one? I cannot find this info anywhere. Thank you very much .
Comment by Arjan Enneman on Mon, Sep 12th, 2016 at 5:15 PM
The percentage of tax will remain the same. The tax rate and the assumed percentage fictitious profit are fixed amounts. The same if you own a third house. It will only become different if your house ownerships together are seen as a business by the tax authorities. In that case the real income and expenses become relevant.
Comment by Shyam Baxi on Thu, Sep 22nd, 2016 at 3:06 PM
Hi, I have a mortgage on my current residential apartment (say Apartment A). I have money in my bank account & intend to pay-off the mortgage completely. My plan is to then rent this apartment and buy another bigger house by taking a mortgage from the bank. Does this make sense? I understand if I own a house & if I buy another one, I need to get my capital equivalent to the previous one? Can you help us understand the TAX structure around buying another house and renting the first one? Many Thanks
Comment by Lilia on Mon, Oct 3rd, 2016 at 9:24 PM
Hello! I want to buy a second house in the Netherlands with a mortgage. Will I get tax relief on this mortgage as I don‘t have a mortgage on my first property? Thank you!
Comment by Samara on Tue, Oct 4th, 2016 at 6:15 PM
Arjan reference to your last post above. How would I qualify as a property business owning several properties abroad that I invest in for rental income so that I can claim expenses as a business rather than being categorised as a home owner with non resident properties taxed in box 3 at the fixed rate of 1.2 percent. Any advantages / disadvantages of either ? Thanks
Comment by orsalia on Wed, Oct 26th, 2016 at 12:17 PM
Hi. I am an expat and I intend to buy a house in the Netherlands. If after lets say 5 years, I get married and my partner buys another house on his own name, and I rent out my house while living with my husband, will I be taxed? Also, as I will be registered to my husband‘s address does that affect my taxation anyhow for the house that I own? Thanks!
Comment by Arjan Enneman on Fri, Nov 11th, 2016 at 3:16 PM
@Shyam: You may first one to check with your mortgage provider whether you have to pay a fine if you pay off the entire mortgage at once (since you don‘t sell the appartment). It is possible to arrange a new mortgage for the bigger house you want to buy. Since this house will be your principal residence and therefore falls in Box 1, you should be able to deduct the mortgage interest. The appartment you rent out will move to Box 3. The new house can be more expensive, for the tax consequences in box 1 this won‘t make a difference. Only if you would sell the appartment and make a profit then you are assumed to invest the profit in your new house.
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