Property lets and tax administration

(Temporarily) letting your property can be an excellent solution to avoid paying duplicate (mortgage) costs. Letting also means that your property is no longer vacant, which will help make it more attractive to potential buyers. Interhouse Huur- en Verhuurprofessionals® has a great deal of experience and success in temporarily letting properties to trustworthy tenants, many of whom have ended up purchasing the property. Letting does have consequences for your tax status, however.

The Dutch Tax and Customs Administration applies the following rules to lets:

When you let your old home:

You no longer meet the 'owner-occupied scheme' criteria. From the start of the let, the property transfers from box 1 to box 3 and your mortgage interest can no longer be deducted. This transfer from box 1 to box 3 from the start of the let is considered by the tax authorities to be a sales transaction. Up to and including 2009, the property remained in box 3 even after it was let.

This regulation was changed from 2010. In the case of temporarily letting your own owner-occupied home, the property must remain for sale during the let period. After the let period has expired, the property again comes under the 'owner-occupied scheme', but only if the property is vacant and for sale. From that time, you may again deduct the mortgage interest.

For the 'additional loan scheme', the transfer from box 1 to box 3 from the start of the let is no longer considered to be a sale. The return to box 1 from box 3 after the end of the let is not considered to be a purchase for the 'additional loan scheme'. The resumption of the box 1 'owner-occupied scheme' at the end of the let period only applies if this occurs before the end of the second calendar year (for 2011: before the end of the third calendar year) after you vacated your property.

Please note

A transitional scheme applies to situations in which a temporary let was already in place prior to 1 January 2010.

If the property was already let prior to 1 January 2010, you can ask the tax authorities to apply the 'transitional temporary let scheme'. Since 2010, after the end of the let period the property may once again come under the 'owner-occupied scheme' and you may again deduct the mortgage interest.

The transitional scheme may also affect the owner-occupied home debt for the new property. Prior to 1 January 2010, the transfer from box 1 to box 3 from the start of the let was always considered to be a sale. If the value of the property is higher than the owner-occupied home debt, then there is a surplus value.

In the past, if you had purchased a more expensive property, then the surplus value reduced the owner-occupied home debt on the new property. The scheme which applies since 1 January 2010 means that the consequences of the additional loan scheme are deemed not to have entered into effect. As a result, from the start of the temporary let of the property you may be able to deduct a higher portion of your mortgage interest on your new property.

Tax authority terms and conditions for this transitional scheme

• The property was your principal residence on 1 January 2008;
• The property was vacant and for sale after 1 January 2008;
• The property was temporarily let while awaiting a sale;
• The property was not sold as of 1 January 2010;
• You request application of the transitional scheme;
• You agree to the following:
  a. the transfer of the temporarily-let property from box 1 to box 3 is not considered by the tax authority to be a sale for the additional loan scheme;
  b. if the tax inspector has issued an owner-occupied home reserve decree, this decree will be revised;
  c. if the property reverts to being owner-occupied, this does not apply as a purchase for the additional loan scheme.

Example:

On 15 January 2008, you purchased a new home for €240,000. To do so, you took out a mortgage for €240,000. You moved into your new home on 1 March 2008. From that date, your old home was vacant and for sale. Your old home was temporarily let from 1 May 2008 but remained for sale. The let was terminated on 1 May 2010. The home is still for sale.

From the start of the let, your old home comes under box 3 and you may no longer deduct your mortgage interest. The economic value of the old home is €165,000 as of 1 May 2008 and the owner-occupied home debt is €95,000. The transition from box 1 to box 3 is a sale for the additional loan scheme. The surplus value is €70,000 (€165,000 - €95,000). The owner-occupied home debt for the new home, i.e. the sum on which interest may be deducted, is consequently €170,000 (€240,000 - €70,000).

On 1 April 2010, your old home reverts to box 1. The mortgage interest on your owner-occupied home debt can again be deducted from that date until the date of the sale, but only up to and including 31 December 2010 at the latest.

The transfer of your old home from box 1 to box 3 on 1 May 2008 is not considered by the tax authorities as a sale for the additional loan scheme. You consequently do not need to take into account the surplus value of your old home and your owner-occupied home debt remains €240,000. From 1 May 2008, mortgage interest may be deducted on the €240,000, but only up to the date of the sale of the old home and up to and including 31 December 2011 at the latest.

There may be exceptions which apply to your personal situation and which are not included in the above information. This information gives a general picture and no rights can therefore be derived from it. For tailor-made advice, please contact your tax consultant.