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

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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 a certain percentage (based on the actual savings and investments in the Netherlands) which is taxed at a fixed rate of 30%.

Calculation:

Value property: 200,000
Mortgage: 150,000
Tax: 200,000 -/- 150,000 = 50,000 * 1.935% (figure 2019) * 30% = € 290

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.