Six changes to tax regulations you should be aware of

The Supreme Court finds the Recovery Act and the Bridging Act breach European law

In 2021, the Supreme Court ruled that the taxation in box 3 applicable at the time broke EU law. This is because the actual composition of someone’s assets and the actual return were not taken into account. To compensate those who overpaid tax in the past, the Recovery Act was introduced.

Moreover, the Bridging Act was introduced to cover the period until a new box 3 system is introduced. Both pieces of legislation now take into account the actual composition of assets. However, they still use assumed returns.

On 6 June this year, the Supreme Court ruled that the Recovery Act and the Bridging Act still do not comply with EU law. According to the court, the assumed return only comes close to the actual return for savings.

This means that if you have overpaid, you must be compensated for this. However, you are responsible for proving that your actual return is lower than the assumed return applied. The Supreme Court has laid down rules on this. For instance, you must also include any gains or losses on your assets.

The Dutch Tax and Customs Administration is currently going through the Supreme Court rulings and will write to the taxpayers concerned later this year. Whatever happens, the current procedure for box 3 will change, so it’s important to keep good records. To support this, the tax authorities will provide an ‘actual return declaration’ form.

In the meantime, submission of the bill for the Box 3 Actual Return Act to the Council of State for advice has brought the new box 3 system a step closer.

About the Box 3 Actual Return Act bill

The bill distinguishes between different forms of assets such as savings, shares and property. The latter will be subject to a capital gains tax, but the value is taxed only on gains actually achieved (such as a sale). Other assets (such as shares) will be subject to a different kind of capital gains tax, where unrealised value gains are also taxed. Direct returns (interest, dividend and rent) will be taxed too. The tax rate will be set at 36% (the same rate as 2024). The bill suggests that taxpayers will have to do more to keep their affairs in order, such as keeping an accurate record of the income from assets you have received. The bill is likely to be amended in parts, but it’s a good opportunity to remind ourselves about the importance of good record keeping.

If you’re a single parent or a parent who earns less than your partner and you combine work and care for young children, you can currently use the income-dependent combination discount (IACK). However, the IACK will be abolished with effect from 1 January 2025 for parents with children born in 2025 or later.

The income tax averaging scheme has been abolished from 2023. This allowed you to average highly variable incomes over three years and benefit from a special rate. There is a transitional scheme in place, which will allow you to take an average over 2022, 2023 and 2024.

The government has put forward a bill that would allow you to take out 10% of your retirement pension in one go. You could then spend this lump sum however you wish. However, taking out a lump sum means the remainder of your pension payments will be lower. The same legislation would also make it possible to have up to 10% of the annuity capital you’ve built up paid out at once. If the bill passes, it will take effect on 1 January 2025.

In 2024, the margin for deducting your annuities works as follows:

• Annual margin: the maximum amount of tax-deductible premiums you can pay into annuities is now 30% of the premium basis. The premium basis is essentially your income minus the portion on which you will receive your state pension later. Premiums can be deducted up to €36,077.
• Reserve margin: if you don’t use up your annual margin completely, you can use this reserve margin later. This unused deduction is now equal to the unused annual margin for the past ten years, up to a maximum of €41,608.
• Additional years of accrual: you can continue paying tax-deductible premiums for up to five years after reaching state pension age, or in other words, working longer means you build up more.

Important: To qualify for the deduction in 2024, the deductible amount needs be paid in 2024 as well.

In the coalition agreement, it was agreed to gradually reduce the income tax that can be deducted on gifts from 2025 onwards. This means the tax benefit of donating to charitable causes will be lower. If you plan to make a large donation to charity, it’s best to do this in 2024, possibly even before the budget is announced on ’Prinsjesdag’ (17 September 2024).