Cabinet set to postpone asset tax reform again to 2029

Plans to reform the Netherlands’ asset tax system are likely to be delayed for another year as a result of the draft budget deal agreed at the weekend.

The cabinet had hoped to bring in a new mechanism for taxing assets, savings and investments to replace the fictional “box 3” interest rate by 2028.

But junior finance minister Eelco Eerenberg now looks set to withdraw the bill from the Senate to address criticism of the replacement system from opposition parties. If the vote is postponed it is unlikely that the bill can become law before 2029.

The previous system was struck down by the Supreme Court in 2021, when it ruled that taxing unrealised assets on a flat rate, based on the notional average annual return, violated the European Convention on Human Rights.

The rate was initially charged on all wealth above a basic threshold, regardless of whether they were invested in deposit return savings or high-risk investment vehicles with potentially much higher returns.

It also did not take into account overall market performance, so investors still paid tax on their assets even when they made a loss.

Capital gains

The new system planned to tax actual returns by making them submit details of all their savings and investments with their annual income tax return, which would add to the administrative burden.

But right-wing opposition parties want the government to introduce a capital gains tax, which investors pay on the money they make on their assets when they sell them.

In the meantime the cabinet has introduced an interim box 3 system with different fictional rates for deposit savings, investments and debts, which change every year to reflect market performance.

However, savers can claim a refund if they can show their actual returns were lower than the fictional amount, while not being required to pay more tax for higher returns.

The “best of both options” approach is estimated to cost the Dutch treasury some €2 billion a year.