November 17, 2023
Box 3 is still causing a lot of discussion. Real estate investors are often heavily taxed under the current lump-sum system. For a more detailed explanation of the current system, check out Tomas Lim’s blog. Despite a lot of feedback from the field, the legislator is currently not planning to do anything about this system in the short term. This is also evident from the developments around ‘Prinsjesdag’.
Prinsjesdag
The tax plan for 2024 includes some changes to box 3. Firstly, it is indicated that the intended taxation based on actual returns is not considered feasible before 2027. The Tax Authorities are currently unable to implement such a taxation system, and the legislator expects to achieve this only from the tax year 2027 onwards. In addition, the planned increase in the percentage of taxation on the lump-sum return from 32% to 34% has been brought forward to January 1, 2024 (previously January 1, 2025). Furthermore, the House of Representatives have already adopted a motion that increases the percentage to 36% as of January 1, 2024 (The Senate of the Dutch Parliament still needs to vote on this.)
In many cases, the above may not be good news for real estate investors. However, there is also good news.
Conclusion of ‘AG Wattel’
Meanwhile, a different story seems to be unfolding in court. There is often litigation against the lump-sum taxation, with rulings mostly in favor of the taxpayer. AG Wattel (an advisory body for the Supreme Court) has advised the Supreme Court to force the Tax Authorities to allow taxation based on actual returns when the taxpayer can prove that their returns are lower than the lump-sum return. Given that the returns of real estate investors are often lower than the assumed 6.17% in box 3, this is initially good news! Especially considering that this will be applicable immediately and will also apply for years where the final assessment has not yet been imposed.
However, this raises questions and challenges. What constitutes actual returns? Do unrealized returns, such as appreciation in value, also count? (Previous rulings by lower courts usually conclude otherwise) What happens in a loss year? How can we prove what the actual return is?
There seems to be light at the end of the box 3-tunnel for real estate investors. But to get there, something still needs to happen… My colleague Marcel’s advice in his blog therefore remains relevant. Object to your final income tax assessments to keep the path to taxing actual returns open.
If you want to discuss your financial situation or get advice on current box 3 issues, our tax specialists are ready for you!
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