Taxes in the Netherlands - Part 8

As of January 2013, a change in the law will come into effect with respect to the mortgage interest deduction, double mortgage interest deduction, and the exemption from capital insurance for the own home.

Mortgage interest deduction
The mortgage interest remains deductible, but from January 1, 2013 new loans must be fully repaid within a maximum of 30 years, and must be repaid at least according to an annuity scheme in order to be eligible for the interest deduction.

Below are the most important changes for the most common situations:

› Your first home
- The interest remains deductible. However, the loan must be fully repaid within 30 years, and must at least be repaid according to an annuity scheme. This applies in particular to linear and annuity loans.
- For a repayment-free loan, the interest deduction no longer applies, even if saving simultaneously for the (partial) repayment after 30 years.
- In 2018, the maximum amount of the mortgage with respect to the market value of the property (known as Loan to Value (LTV) ratio) may not exceed the market value of the property. The LTV is 100 percent in this case. The LTV ratio is currently 104 percent plus the transfer tax. This percentage will be lowered in six equal stages from 2013.

Example
Monica buys her first home in 2013. She is going to purchase her 200.000 euro house with two loans, one of 50.000 euros (Loan 1) and one of 150.000 euros (Loan 2). Loan 1 is free from repayments while Loan 2 will be redeemed in annuity over 30 years.

In this case the interest on Loan 2 is deductible and the interest on Loan 1 is not. If Monica had decided to repay Loan 1 over 30 years according to the linear method (and still repay Loan 2 over 30 years in annuity), the interest on Loan 1 and Loan 2 would have been deductible.

› You are homeowner (and not moving)
- The existing loan interest deduction remains unchanged. Also there will be no changes for savings and insurance products associated with the loan.
- When transferring an existing loan (for example to another lender) nothing will change if no additional amount is added to the loan.
- If a loan is increased, for example for a renovation, an interest deduction only applies to the additional amount if the loan is repaid in 30 years and follows an annuity scheme.

Example
Linda and George are in possession of a house on December 31, 2012, which has a repayment-free loan of 200.000 euros they took out in 2003. The 30-year period begins for them in 2003.

They therefore have an "existing loan" of 200.000 euros for which 20 additional years’ worth of interest is deductible. The loan does not need to be repaid in order to have the right to deduct interest. In 2018 the fixed interest period lapses. Linda and George decide after some deliberation to accept a new offer from their existing provider and fix the interest rates for 15 years. This has no tax consequences.

Linda and George hold an "existing loan" of 200.000 euros for which 15 years of interest is deductible. The loan does not need to be repaid in order to have the right to deduct interest.

› You are a homeowner & buy a new house
- When transferring an existing loan, in principle nothing will change if the amount of the loan remains the same (even if switching to another lender).
- When increasing the loan, the interest on the additional amount is only deductible if the loan is fully repaid within 30 years and is repaid at least according to an annuity scheme.
- Double mortgage interest deduction on the current home which is up for sale and the new dwelling is still possible in 2013, but the period over which this applies will be reduced from three years to two years.
- For the new part of the loan, in 2018 the maximum amount of the mortgage cannot exceed the market value of the property (LTV = 100 percent).

Example
Maria and John are in possession of a house on December 31, 2012. On this house is a repayment-free home loan of 350.000 euros. They obtained that loan at the end of 2009. In 2009 the 30-year period for interest deduction lapses.

Maria and John therefore have an "existing loan" of 350.000 euros for which 27 years are deductible without the condition that a loan of that amount must be repaid in order for interest deductibility to apply. In 2020 they sell their own home for 370.000 euros. In the meantime, they voluntarily repay 10.000 euros on their repayment-free loan. At the time of sale, the amount of the loan is 340.000 euros.

Maria and John realise a capital gain of 30.000 euros (370.000 - 340.000 euros), which, as a result of the additional loan, will be considered to be "injected" into their own new home. In the same year they buy a new own home for 450.000 euros.

For this they are allowed to borrow 420.000 euros tax facilitated, and they decide to do so. The purchase of the new property is financed with an "existing loan" of 340.000 euros, for which 19 years of the right to deduct mortgage interest remains without the condition that a loan of that amount must be fully repaid in order to have the right to deduct interest on that loan.

The remainder (420.000 - 340.000 euros) is financed with a loan which must be repaid in 30 years according to an annuity scheme. Maria and John may therefore deduct the interest on this so-called "new loan" of 80.000 euros.

Double mortgage interest deduction
The period over which the double mortgage interest deduction applies for properties still under construction or standing for sale will be reduced from three to two years.

Exemption from capital insurance for the own home
For capital insurance on the own home and savings accounts homes (spaarrekeningen eigen woning) which are undertaken after January 1, 2013, the exemption from Box 1 no longer applies.

Nico Koppel is an Expat Service Provider, who specialises in tax advice & accountancy. For more information, please comment below or visit Koppel Tax Consultants.