Dutch box 3 tax / asset tax

[DutchGirl]

Dear all,

Maybe we can take up some space on this forum to discuss the Dutch tax law, and in this case in particular box 3, the tax on assets (generally speaking excluding the house you live in which is taxed in box 1 instead)?

Up until a few years ago, assets were taxed by taking the value of the assets on January 1st of the applicable year, deducting about 40k euros if you were filing single, 80k euros if you were filing together (this deduction amount had been going up slowly every year to adjust for inflation more or less; I do think it was about 40k per person by 2018 or so), and then paying a 1.2% tax on the remaining sum. So for your 2018 tax, say your wife and you had 100k in savings accounts and 100k in investments on January 1 2018, you would have 200k, minus say 80k of the shared deduction, so 120k would be taxed at 1.2% for a total tax of 1,440 euros.

Then the interest rates on savings accounts dropped, people would make less than 1% of interest on their money in savings account, but would still be taxed. They protested this with judges, eventually up to the "Hoge Raad" - High Council. They determined that charging 1.2% of tax on assets that were not producing at least 1.2% of yield was, in layman's terms, unfair.

So since then, the tax laws have been changing, but so far no new "definite" way of taxing assets / capital gains has been found, as new ways of taxing have also been challenged successfully in court.

[delay]

They determined that charging 1.2% of tax on assets that were not producing at least 1.2% of yield was, in layman's terms, unfair.

The original 2021 ruling said that the state cannot tax people more than their income. So if you made 10 euros in interest, there can be a 10 euro tax, but not an 11 euro tax. The reasoning feels right but is also simplistic and unworkable. For example, the ruling does not define income, and lawyers know it takes books of laws and years of judgements to work that out.

It was an unusually fast moving case, skipping the Gerechtshof level, meaning the government was in a hurry to change something. Taking these facts in a larger context, I think it's a play to help Dutch tax and pension laws converge to the European Union standard. Our government is working to make the Dutch system look bad and will then introduce the European standard as a solution. If my guess is right, it is just a further step towards European integration, the same direction we've been sailing in for the past sixty years.

[DutchGirl]

Did you guys know about the "peildatumarbitrage" - meaning that in a 3 month window that includes January 1st (because that is the peildatum for assets) you will be taxed the higher tax rate if you sell the higher earning assets (like investments) before January 1st and then buy higher earning assets again before 3 months since the date of sale are up. With the exception of being able to prove you were not selling to avoid the higher tax rate, but you had a "zakelijke" reason to sell in Oct, Nov or Dec and buy again less than three months later.

So I sold some stocks back on December 30, and it was because I needed money at that point to pay down my mortgage with. And now I want to invest more in stocks as my paychecks of January and soon February come in. Am I going to be in trouble? Or is this one of the "zakelijke" reasons for selling stocks back in Dec en now wanting to buy them again?

[rube]

It sounds like you can reasonably justify why you sold. You are not using the the money from the earlier sales to buy new shares. Buying new shares is from new money (income).

[delay]

Am I going to be in trouble?

Most Dutch people will file taxes for 2025 in April 2026. The online version of your income tax form will be pre-filled with numbers. If you don't change those numbers it's hard to see how the Dutch IRS could get angry at you.

Say the pre-filled numbers slot money in investments that you think should be in savings. Then you can consider changing the numbers. The online form will show you how much less you will pay in taxes. After balancing the time required, how much you enjoy mailing with authorities, and the amount of money, you can make a choice. After a few months, you'll receive a "final assessment" in which the tax authorities show you which numbers they decided to go with.

After you receive a "final assessment", you get two weeks to file an objection. The Dutch IRS has five years to decide if there's something wrong with your filing. If they do, they will send you a proposal that may include a fine, and you get two weeks to object again.

As far as I can see, there's no reason to think about this until it's April 2026 and you see the proposed numbers.

[DutchGirl]

I am not planning to change the numbers that the Belastingdienst has, and has gotten from the banks/financial institutions.

However, I can choose to invest new money now, or wait roughly one more month until March 30 or so when the 3 month period would be up for me: https://www.belastingdienst.nl/wps/wcm/ ... nnen-box-3 .

One doesn't report their investment transactions to the Belastingdienst these days, so they wouldn't find out automatically that I sold stocks and then bought stocks in a 3 month period that includes January 1, but I'm guessing this could be an issue if you get audited. Then again, the chances of that are slim and in that case I have the defense, as Rube said, that I sold the stocks to pay down my mortgage, not to avoid paying the higher box 3 tax rate.

[delay]

The income tax form only asks for amounts at the end of the year, it doesn't ask about transaction dates. So I assume the rule you mentioned means you have to report money that is only out of stocks for a short time as if it were in stocks.

If I were in your situation, I'd wait a month so I can sleep better.

[systemthinker]

How do you guys feel about the new Dutch box 3 taxes as they are currently and likely in the future?

[DutchGirl]

I feel that it's a complete and utter mess. This hot potato issue has been handled very very badly by government after government, and now nobody knows what box 3 tax (or maybe a different way of taxing assets or capital gains) will look like in the future - there's no way to plan for it, as you just have little idea what it will look like. This is for example a shame for my sister-in-law who has taxable assets that she will soon have to live on, but she can't really make plans yet on how much she can spend or how to invest the money, because she doesn't know what types of investments or gains will be taxed, nor how much.

Personally I'm still earning an income, and so I don't need to know just yet what the taxes will be like, as for now I can still pay them anyway and am not dependent on my taxable investments to fund my life until retirement age.

...And what do you think about it, systemthinker?

[DutchGirl]

...Oh and PS. I do think that it is very likely that the more taxable assets you have, the more taxes you will pay (and maybe also a higher percentage, who knows).

So part of anybody's strategy should be, I think, to try to need less money. The less money you need to have to fund your expenses, the less taxes you'll pay. So ERE strategies (trading, doing things yourself, etc) that reduce your expenses but give you the same or even a better life can be very useful here, too.

[systemthinker]

Yeah it seems like the government is incentivizing the strategy to work as little as possible and have as little assets as possible. For me there is also a bit of vindictive reason to work less, namely in my opion the government isn't spending my earned money well.

So what I just did is have a 3 month holiday to Spain, instead of working more and thus spend more on taxes. I had a tonne of fun, got some sunshine and feeling recharged, thanks government!

[delay]

Just did my taxes on paper. Wealth tax is now differentiated by type. There is a fictional profit assigned to each class of wealth, like 6.04% for investments, and we then pay 36% tax over that. So we pay a percentage of our total wealth:

• savings: 1.44% x 36% = 0.5%
• investments and other possessions: 6.04% x 36% = 2.2%
• debts: 2.61% x 36% = 0.9% (negative)

The Dutch courts have said that your tax payment cannot be larger than your real returns. For example, if you have 100,000 invested, you pay 2,200 in tax. If your investments made less than 2,200 your tax payment must be reduced.

Trying to see what this means:

• Deposits have 1.7% less tax, so a bond paying 3% is equal to a bank account paying 1.3%
• Three years of 0% 0% 10% returns make 10% before tax and 7.8% after. Three years of 4% 4% 4% returns make 12.5% before tax and 5.5% after. So the system puts a premium on fluctuating investments. Because it's calculated over your entire wealth, your entire portfolio has to fluctuate like this
• If you borrow 100,000 to invest, you pay 2.2% - 0.9% = 1.3% tax over those investments. So if the rate for borrowing is 3.3% the tax system makes that effectively 2%

So far I have no idea how to translate this to practical investment advice

[DutchGirl]

It does make investing in bonds slightly less interesting to me. Because both bonds and stocks are considered "investments" and are taxed at the higher rate. But generally speaking and on average, bonds will make lower profits but still get the same fictional profit. So I'd rather indeed have a 2% guaranteed interest rate in a savings account (for example a deposito), pay 0.5% of tax and come out at 1.5% guaranteed, than put the money in a bond fund with potentially 0% or negative returns but still a 2.2% tax.

I believe if you want to be taxed on the real returns instead of the fictional ones, you can't just do that for part of your assets. You have to do that for all of your assets (excluding the ones in specific official retirement accounts). So if you have a portfolio that has some bonds but mostly stocks, and the bonds do not so great but the stocks do, you'd still be better of not protesting and taking the standard tax. But for the bond part that would still suck and would still mean you'd have come out ahead by putting that money in high-yield savings accounts instead.

So for me it means bonds have at least become less attractive - maybe I'll still have some, but less than before. (Right now I happen to have zero in bonds because I needed to cash out some investments).

Also... it's still not clear whether this will be the final way in which they'll tax us for 2023, 2024 etc. There are still protests going on and law suits, so it may turn out that this will change. I would hope it will change in the direction of having to pay less of taxes, but one could incidentally do something now which may turn out to bite you in the butt later, just because things may still change and we don't know how.