Budget Day 2021: High-net-worth individuals

Reduction of income-dependent combination tax credit (IACK)

It is proposed to reduce the maximum amount of the IACK as of 2022 by € 395. In addition to the reduction proposed as of January 1, 2022 pursuant to the Tax Plan 2021, the maximum amount of the IACK will be increased by € 77 as of January 1, 2022. On balance, for 2022 there is a policy-based reduction of the maximum amount of the IACK of € 318. This measure serves to partially cover the expenditures resulting from the Paid Parental Leave Act bill that was passed by the House of Representatives on April 20, 2021.

Repair of income-related combination tax credit (IACK) granted to foreign taxpayers

The application of the income-dependent combination tax credit (IACK) is conditional, among other things, on the taxpayer not having a tax partner, or having a tax partner with a higher employment income.

The granting of the IACK to foreign taxpayers can lead to different outcomes compared to domestic taxpayers with similar factual circumstances. The difference between foreign and domestic taxpayers is an unintended effect of the legislation and is caused by the exception to the tax partner concept for foreign taxpayers.

In the Tax Plan 2022, it is proposed to amend the legislation on this point as of January 1, 2022, whereby the effect of the IACK for non-resident taxpayers will be equal to that of resident taxpayers.

Reduction of deduction rate already implemented

The mortgage interest deduction in the highest income tax bracket has been reduced by 0.5%-point annually since January 1, 2014. Starting in 2020, the reduction will be accelerated and will take place in annual steps of 3%-points until 2023. In 2022, the deduction rate for deductible costs for own homes will be a maximum of 40%. This was already established in the Tax Plan 2019.

As of January 1, 2020, a similar deduction limitation will also apply to other deductions. For entrepreneurs, this includes the self-employed deduction. The deduction rate for this will also be a maximum of 40% in 2022.

Changes to the owner-occupied home scheme

These are the changes to the joint purchase and financing of an owner-occupied home by tax partners and the changes upon the death of one of the partners:

Married in a general community of property

The principle of the owner-occupied home reserve, which is determined at the individual level, continues to apply. In the case of a marriage in a general community of property, half of the owner-occupied home reserve passes to the other partner. By tightening this rule, the owner-occupied home reserve is aligned with the civil and economic entitlement to the disposal balance of the owner-occupied home that led to the owner-occupied home reserve.

Married and unmarried

The biggest change for married and unmarried people is that the 2018 policy decision is codified. This establishes that both partners' owner-occupied housing history, including the owner-occupied housing reserve, will be divided half between them, as well as that the repayment status will be viewed at the joint level. This rule also applies to cohabitants with a cohabitation contract.

Married couples and estate planning

With regard to the repayment position, the repayment position will remain with the partner with whom the repayment position arose and will no longer be divided in proportion to justice in the matrimonial community of property. A similar arrangement is introduced with respect to the over-closing period.

Death

In the event of death, the starting point will return to the way it was before 2013. This means that the owner-occupied home reserve can no longer be transferred to another taxpayer, and the same rule will be introduced regarding the repayment position.

Changes to exemption from real estate transfer tax for starters

The starters exemption is an exemption whereby if the conditions are met, no transfer tax is due on the transfer of a home. The exemption is a one-off and can be applied if the acquirer will use the home as his/her main residence other than temporarily and also meets the age requirement (18 to 34 years).

As of April 1, 2021, the exemption is only applicable if the value of the home does not exceed the home value limit of €400,000. In the Tax Plan 2022, it is proposed to rephrase the anti-abuse provision, which deals with situations in which ownership is split in order to get below the home value limit, to remove unintended ambiguities.

In addition, the Tax Plan 2022 includes a provision that allows unforeseen circumstances to be taken into account with respect to the principal residence criterion. If an unforeseen circumstance, such as death or divorce, occurs prior to the acquisition of the immovable property but after the purchase can no longer be dissolved, the principal residence criterion can, under certain conditions, be met. This means that the high general transfer tax rate of 8% is not levied, but that the application of the reduced rate of 2% or the starters exemption remains intact.

Business Succession Regulation (BOR)

No changes have been announced regarding the BOR. You can read more about BOR in our previously published article.
Article BOR

Want to know more?

Would you like to know more about the 2022 Tax Plan, the proposed changes and what this means for you? Then please contact Bianca de Kroon by e-mail or by phone: +31 (0)88 277 10 10. She is happy to help you.