1. What is the notional rental value?
Notional rental value is a certain percentage of the value of your house that is added to your income and on which you have to pay tax. It applies to a house that you live in, not a rental home, second home or holiday home. Only one home falls into box 1 (taxable income from work and home). This also applies if you have a tax partner. Any other homes and holiday homes are included in box 3 (income from savings and investments) and the notional rental value does not apply.
2. How do you calculate it?
For homes with a WOZ value between € 75,000 and € 1,130,000 in 2022 a percentage of 0.45% of the WOZ value applies. In 2021 it was 0.5%. For example, if your home has a WOZ value of € 350,000 euros, the notional rental value is 350,000 x 0.0045 = € 1575. This amount is added to your income and you pay income tax on that. Up to an income of € 69,398 that is 37.07% (€ 583.85). Above that it is 49.5% (€ 779.6).
The notional rental value decreased in recent years from 0.75 percent (in 2017) to 0.45 percent (in 2022) of the WOZ value. This decrease is related to the reduction in the mortgage interest deduction, which is being phased out. Due to this, the tax authorities will receive more income and that benefit partly goes to the reduction of the notional rental value.
The mortgage interest deduction is a deductible item, notional rental value is an addition. For example, with an income of € 50,000 and a notional rental value of € 2000, your taxable income is € 52,000. You paid € 3000 mortgage interest this year. You may deduct this amount from that income (provided you meet the conditions). You ultimately pay income tax on (52,000 – 3000 =) € 49,000.
3. Why do you have to pay notional rental value on your owner-occupied home?
According to the Tax Authorities, you build up capital with your own home. That provides an advantage over someone who rents. Another 'revenue' is the enjoyment of living (a revenue in kind). These two benefits are taxed with the notional rental value.
4. What is the 'villa boundary'?
Homes with a WOZ value above € 1,130,000 fall above the so-called 'villa limit' and the notional rental value is higher. In this case there is a fixed amount of € 5085, supplemented by 2.35% of the WOZ value above € 1,130,000. For example, the owner of a house worth € 1,500,000 has a notional rental value of € 5085 plus € 8695 (2.35 percent of € 370,000) is € 13,780.
5. What if you have already (partially) paid off your mortgage?
In 2005 the Hillen Act was introduced, an incentive from the government to pay off the mortgage. This law states that the notional rental value is (partially) canceled if it exceeds the mortgage interest deduction. That is the case if the house is (to a large extent) mortgage-free. The Hillen Act will be gradually phased out until 2048. Each year, the percentage with which you can deduct the lump sum decreases by 3.33%. This year the percentage is still 86.67.
For example: you already paid off your mortgage and your notional rental value is € 2000. In 2022 you can deduct 86.67%. This leaves € 266.60 on which you ultimately have to pay tax. The tax authorities automatically apply the deduction from the Hillen Act when completing the tax return.
Yesterday on Budget Day the Dutch government announced its plans for next year.
Below some highlights of the 2021 Tax Plan:
Income and taxes
As of January 1st 2020 a number of new laws and regulations came into effect. Below an overview of the most important changes.
With the introduction of the two brackets tax system and new income tax rates, incomes up to € 68,507 annually will be taxed at 37.35% and earnings above this amount will be taxed at 49.5%.
The minimum wage goes up. The same applies to some benefits, including welfare benefits and the state pension.
Payrollers are entitled to the same employment conditions and legal status as permanent employees.
From 2020, employers must call on-call workers for work at least 4 days in advance. After 12 months, employers must offer on-call workers a fixed-hour contract (a fixed number of hours of work per week, month or year).
From January 1st , employees are entitled to a transition payment from the first working day. Further, an employee can have 3 temporary contracts in a maximum of 3 years. The next contract is then automatically a permanent contract.
Small business owners with an annual turnover of up to € 20,000 can be exempt from turnover tax from
In 2020, the self-employed deduction is reduced from € 7280 to € 7030. The self-employed deduction will decreases step by step to € 5,000 by 2028.
For people with an income above € 68,507, the mortgage interest deduction has decreased, from 49% to 46%. If you have a lower income this change does not affect your deductible items.
In 2020 the National Mortgage Guarantee limit is € 310,000. If you invest in energy-saving facilities, the NHG limit rises to a maximum of € 328,600.
The energy tax changed on 1 January 2020. The tax on natural gas is gradually increasing. The tax on electricity is decreasing.
The childcare allowance increases for all parents. As of July 1st the parental leave
will be increased with five weeks.
The duration of partner alimony is reduced from twelve to a maximum of five years.
The maximum healthcare allowance will increase in 2020. In addition, the basic healthcare insurance package will be expanded. The own risk remains the same at 385 euros.
Municipalities can implement yellow or green environmental zones which will decide which cars can drive there.
In 2020, owners of older diesel cars must pay a fine dust surcharge of 15% in addition to the standard road tax.
The tax benefits for electric cars will continue in the coming years. Until 2025 you do not have to pay vehicle or purchase tax for an electric car.
Amsterdam - House prices will increase somewhat faster than expected in the coming year. Rabobank economists assume a 4.5% increase, whereas they were previously aiming for 4%.
House prices continue to rise so fast due to the persistent housing shortage and the equally persistent low mortgage rates. The housing market is and remains tight, mainly due to the nitrogen crisis.
The 4.5% increase is still a lot less than the 9% price increase of 2018, or the approx. 6.7% of this year.
For households with an income above € 68,507, the mortgage interest deduction will be reduced faster from 2020 onwards. The deduction rate of a number of other deductions is also gradually being phased out. This is stated in the Tax Plan 2019 that was approved a few days ago by the House of Representatives. A proposal to increase the transfer tax for people who own more houses did not make it.
The plans for reducing the mortgage interest deduction were already clear at the presentation of the new National Budget on Budget Day. Mortgage interest deduction for incomes in the highest bracket is already gradually being reduced, but from 2020 onwards this will be faster. From 2023, the deductible costs of the owner-occupied home will be deductible against maximum 37.05%. At the moment this is still 49.5%. With the proceeds of this measure, the government intends to lower the notional rental value. This is a percentage of the WOZ value of the house over which tax must be paid.
The rates for a number of other deductions, such as the self-employed tax deduction, SME profit exemption, donations and partner alimony will also be reduced for these incomes starting from 2020. From 2023 onwards these items can also be deducted against 37.05%. With the proceeds of this measure, the government intends to pay the reduction of the income tax.
An amendment by MP Nijboer (PvdA) to the new tax law, in which he advocates raising the transfer tax to 10% for people who already have at least two houses, did not make it. The PvdA MP wanted to slow down the sharp increase in the number of private investors in the housing market. However, this proposal is not feasible according to State Secretary Menno Snel (Finance).
After a coalition meeting on Monday evening the Prime Minister Mark Rutte announced that the abolition of the dividend tax will definitely be reversed.
The €1.9 billion budgetary space will be invested to boost the business climate. Corporate tax will be reduced more than previously announced. By 2021 the corporate tax will be reduced from 22.5% to 20.5% for big companies and to 15% for small companies.
The changes to the 30% ruling will be implemented, but a transition period will be arranged for expats who would be affected by the rule in 2019 and 2020. From 2021, structurally € 200 million will be allocated to reduce employers' costs on labor in order to boost the Dutch business climate.
The coalition is discussing currently alternatives to the abolition of dividend tax at the Ministry of Finance. Further reduction of corporate tax for large companies is also being considered.
The government announced at the end of last week that the much criticized abolition of the dividend tax is being reconsidered. Earlier they said that this budgetary space, next year 1.9 billion euros, would be used for other forms of tax relief for businesses.
The planned changes to the 30% ruling (to shorten the tax advantage for highly skilled migrants from eight to five years) are also on the discussion table. There is a possibility that the planned cut may not be as severe as the government planned and the five-year period may be extended or a one year transition period may be introduced.
However, at the moment nothing is sure yet, as the Ministry of Finance has refused to comment while discussions are ongoing.
Expats are upset with the government, because as of next year their tax advantage (30% ruling) will be shortened from eight years to five. Through a crowdfunding campaign they have raised already around € 40,000 in order to hire a lawyer.
Patrick Mikkelsen, Director of the American Chamber of Commerce in the Netherlands says that the change to the ruling is a huge setback. There is no transitional arrangement. Tax specialists have calculated that - depending on everyone's personal situation - the change may involve an increase of about forty percent in the tax burden, which is a huge amount. According to Jeroen Lammers, economic director of VNO-NCW, this is about reliability of the government. Legal security is something that the Netherlands has always been known for. And now a measure is being taken which affects existing cases. That is not good.
The fast pace at which house prices are now rising cannot be sustained. According to economists from ING and Rabobank, the price increase is likely to weaken next year. Nevertheless, houses will continue to be more expensive in the coming years.
ING economist Marten van Garderen explains that economic growths and a growing population goes along with an increase in house prices. However, he thinks that the catching-up effect of the crisis on the housing market from a few years ago has more or less come to an end. ING foresees a plus of 8.5 percent for this year, but for 2019 only 4.4 percent.
Rabobank's latest estimates for 2019 still assume around 7 percent price increase. Nic Vrieselaar, Rabo economist is convinced that the average price of a house will soon go over € 300,000. Another factor is that there is not so much increase in newly-built homes, which would provide a wider range of housing.
House prices have been higher than ever in the Netherlands since May this year. In August, houses were on average 9 percent more expensive than a year ago. Since the low point in 2013, prices have already increased by about a third.
The limited number of houses for sale and the high prices make it difficult, particularly for young people to buy a new home. Many people can get a mortgage of only € 150,000 from the bank.
The duration of the 30% ruling for expats (tax advantage for highly skilled migrants) will be shortened from eight years to five. The government is planning to apply the change as of 01.01.2019 to both newcomers applying for the ruling and expats who have already been benefiting from receiving the tax advantage. This change will also affect the maximum loan capacity for expats.
The 30% ruling allows the employer to pay 30% of an expat’s salary as a tax-free allowance as a compensation for the expenses that the employee has (such as traveling costs, housing costs, costs of living) while temporarily working and living in the Netherlands. The main purpose of this ruling was to attract particular expertise which is either not available in the Netherlands or is rare.
The ruling was researched and the evaluation shows that around 80% of the expats benefiting from the 30% ruling use it only for five years or less. The other 20% who use the maximum duration of the ruling is mostly planning a long-term stay in the Netherlands. The evaluation is reason enough for the government to shorten the duration of the ruling with three years. In the surrounding countries where they have similar arrangements, the duration is also limited to five years.
The reduction in duration affects also the maximum loan capacity of expats who are planning to take out a mortgage. Due to the 30% ruling expats temporarily have a higher income, which they need to prove with the decision from the tax authorities. As long as the 30% ruling applies, it may have a positive impact on the ability to get a mortgage or the maximum loan capacity. Expats need to make sure that they are able to pay for their mortgage also when the ruling does not apply anymore.
According to the Dutch government’s plans, in 2019 the income tax brackets will be reduced to two from the current four. There will be a basic tax rate of 36,93% applied to an annual income up to € 68,600 and a higher tax rate of 49,5% will apply to an income above € 68,600. Pensioners will pay a tax rate of 18,65% on the first € 20.000.
The change in the income tax rates means that people on middle or high incomes will pay less income tax. The mortgage tax relief will also be a little lower in 2019.
In the next few years the mortgage tax relief will gradually be reduced. In 2019 the maximum percentage of interest that can be deducted will be lowered by 0,5% to 49%.
The restriction shall only apply to deductions regarding your own house, such as mortgage interest or mortgage advice and to homeowners who deduct these costs from their income above € 68.600.
As of 2020 the mortgage tax relief will be reduced more rapidly. The deduction will decrease with 3% per year to approximately 37% in 2023.