Owners who rent out one or more homes will have to deal with a significant increase in their tax bill in the coming years. It will be difficult to escape from this, because the shortcut that appears may also be cut off.
Until now, home landlords could make use of tax benefits in box 3 of the income tax: income from savings and investments. There they get various benefits, which is why this is also called ‘the fun box’. For example, rental income is untaxed and there is a discount on the home value on which tax is levied. Due to this ‘vacancy value ratio’ for long-term rented homes, the stated value is tens of percent lower than the WOZ value that the tax authorities usually use for taxing the owner-occupied home. Any mortgage debt is also deducted from the amount on which the tax authorities levy tax.
The low tax burden made it very attractive to buy properties for rent. Many small investors have done so in recent years, or have kept their old home and rented it out when they moved on to a larger home.
However, this system is changing. Next year, the government will already take a first step by abolishing the vacant value ratio. From now on, the WOZ value must then be stated in the tax return. In addition, the cabinet wants to introduce a system whereby tax must be paid on the rental income and the increase in value of the property.
The latter in particular can be expensive for landlords, according to financial planner André van Luijk. “That money is not coming into your account. As a result, you may have to pay more tax than you receive in rent.” He sees that many professional investors are already responding to this. If they buy homes, they do so with a BV that falls in box 2, to which different tax rules apply. The BV pays tax on the profit from the house, so the rental income minus the costs (such as those for maintenance). The increase in value only needs to be settled when the BV sells a property.
Depositor’s refuge
When the interest on savings dropped to zero in recent years, box 2 was already a safe haven for savers. Large savers who hardly received any interest, moved their assets to a special savings company, which then did not owe any tax on it. This so-called box-hopping is a lot less attractive for investors who already own homes, says tax lawyer Wil Vennix. “When it comes to a home that is already owned, sale to the BV leads to the levy of 8 percent transfer tax. You don’t earn that sacrifice quickly, so I would think about it carefully.”
The BV can deduct the transfer tax from the purchase value of the home in a number of years. This depreciation reduces the income tax. The value for which the property is on the books then decreases. This depreciation is possible until the WOZ value of the house has been reached. It does mean that the value for which the house is in the books of the BV may be a lot lower than the actual value when it is sold. In that case, after the sale, a substantial amount of profit tax must still be settled with the tax authorities.
Vennix also points out that it is not certain that the rules for BVs will remain the same. “The rates in box 2 are also discussed and it is clear that they will also change. That makes it almost impossible to make tax planning at the moment.”
Also more difficult to rent out
Van Luijk thinks that for many smaller landlords, selling quickly becomes an option as an option. At the same time, the rules for renting out homes are being tightened up at the same time. The rents of more homes will be regulated and there may be a rental ban for homes that consume too much energy. “This combination will ensure that many smaller homes are no longer profitable. They will almost certainly be sold.”
Also read: Investor about lower rents: ‘All my relations say: I’d rather sell with these rules’
Many investors are parents who once bought a house for a student child. If that child still lives there, it may be an option to sell the house to him or her, Vennix thinks. Then the house moves from box 3 and it becomes the child’s own house. “This is possible at an advantageous rate for the transfer tax of 0 or 2 percent. This year you can also make use of the high gift exemption, or the jubelton.” The child can take out a mortgage for the rest of the amount, possibly even with the parents.
Vennix sees a parallel between the plans and the major tax reform at the beginning of this century. Then the government decided to tax the increase in value of a property that someone rented out to their own private limited company. This led to a lot of unrest among entrepreneurs, but the damage was not too bad in the end. They had to enter an initial value of a property. “If the initial value is high and the real estate market subsequently collapses, instead of an increase in value, there may also be a decrease in value. The tax authorities also participate in that.”
He thinks it is best for second home owners to wait and see what the new rules will look like. “Costs may soon be deductible. It can therefore be smart to postpone major maintenance. When the time comes, it is important to ensure a good starting value. Until then, you can’t do much.”
A version of this article also appeared in the newspaper of 12 July 2022