In 2025, homeowners who earn higher incomes in the Netherlands will receive a higher mortgage interest deduction, while the tax relief for those with lower incomes will decrease, NOS has reported.

Addition of new Dutch income tax bracket impacts mortgage tax benefits

The government offers homeowners the chance to deduct the interest that they pay on their mortgage from their annual tax return. The taxpayer will then receive a percentage of this amount back.

Since 2013, the rate at which mortgage interest can be deducted has steadily decreased as too high of a tax relief causes a strain on the housing supply. For the past two years, a flat tax reduction rate of 36,97 percent has applied to all incomes (equal to the lowest income tax bracket), but from next year this will change as the Dutch government introduces a new income tax bracket.

Under the changes, the mortgage tax relief rate will match the income tax rate that the person pays. Low-income workers in the Netherlands earning less than 38.441 euros will have a reduced income tax rate of 35,82 percent, which means that they will also have a smaller mortgage tax deduction. This means that they will receive a tax refund of 35,82 percent of the mortgage interest paid over a year.

The new tax bracket for incomes between 38.441 and 76.817 euros per year will see employees pay an income tax of 37,48 percent - this means they can deduct a higher rate of interest paid on their mortgages than they have this year.

New Dutch tax plan is controversial

On the platform for economists in the Netherlands, ESB, public sector economics professor Raymond Gradus has urged the Senate to review the tax plan so that the deduction applies at the lowest rate of 35,82 percent for all incomes. 

“For the first time since 2013 the rate for the mortgage interest deduction for high incomes is not going down but up,” wrote Gradus, which means potential homeowners can borrow more money, inevitably overheating the Dutch housing market further.

According to Gradus, if the government opts for the lower rate, it would yield the treasury around 400 million euros - making up for half the proceeds they would have made from the scrapped VAT increase on cultural activities. 

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