Dutch Tax Blog

Dutch Tax Blog

Notional rental value

Expat tax matters mortgagePosted by Mike de Gruijl Fri, July 29, 2016 15:45:25


This is why you can't deduct the full interest payments from your gross income.


In this article I will try to explain in a very simple way how the Notional rental value works and what effects it has on your mortgage payments deduction.

What a lot of expats in The Netherlands don't realize when they buy a house is the fact that when they own a house. there income will be fictively increase with the notional rental value of the property. In Dutch it is called "eigenwoningforfait" The notional rental value is a percentage of the WOZ value (The WOZ value is the value of the property as determined annually by the municipality based on market developments on the housing market in certain neighborhoods and streets).
The percentage is based on the actual value of the property the year before. For example if you are filing your taxes in 2015 you will need the WOZ value of your property over the 2014 in order to determine with which percentage of the WOZ value you will need to calculate. The most common rate is 0,75%. Below you'll find the different scales with the percentages based on the WOZ value.

-

€ 12.500

0%

€ 12.500

€ 25.000

0,30%

€ 25.000

€ 50.000

0,45%

€ 50.000

€ 75.000

0,60%

€ 75.000

€ 1.050.000

0,75%

€ 1.050.000

-

€ 7.875 + 2,35% over the excess of € 1.050.000

Like mentioned above most people will be likely to pay 0,75% of the value. If we take a closer look on what effect this has on your tax return you will understand why not all interest payments are tax deductible. For example;

Your yearly gross income is € 50.000,- (=max 42% tax wages)
Your mortgage (interest only) is € 125.000,- with an intrest rate off 2,5%
The WOZ value of a property is set at € 100.000,- which means your income will be increased with 0,75% of this € 100.000,-. This makes your income € 50.750,-. Because your employer only withheld taxes based on your salary it is like that you will have to pay an amount of 42% of this € 750,- which is € 315,-. (keep this € 315,- in mind)

The annual interest payments are a total amount of € 3.125,- This means that you can decrease your income with this amount to € 46.875,-. If there was no notional rental value value you would have paid € 1.312,- taxes wages to much on your salary because your employer withheld taxes based on the € 50.000,- and received this amount back from the tax authorities.
However because in this case the notional rental value is € 315,- you must deduct it from the € 1.312,- which means you will "only" receive an amount of € 997,-.

Unfortunately not all mortgage advisors or real-estate agent mention this when you are busy buying a house.

Please note that the above is a very simple explanation on how the notional rental value works in the Dutch tax system and we are happy to support you with our tax return services at Tax & Service Solutions.

More information or contact can be found at www.tssolutions.nl





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