Compensation for wealth tax proposes the Cabinet for a billion jobs

He did not miss the symbolism, said Secretary of State Marnix van Rij (Fiscality) during a press conference at the Ministry of Finance on Friday morning. On December 24, the day before Christmas, the Supreme Court ruled that the existing capital gains tax was illegal. As a result, some of the savers and investors with Box 3 assets paid too much tax for years.

On Good Friday, the CDA member presented the possible solutions that the Cabinet has devised for this problem. For the first time, he also gave a concrete insight into what a future-proof wealth tax could look like after 2025. The wealth tax as a political theme on both the birthday and death of Jesus Christ, it was appreciated by the reformed tax specialist.

Van Rij stressed that the Cabinet faces ‘difficult choices’ in terms of compensation. According to him, there is no ideal solution. In any case, the restoration of rights required to compensate savers and investors with Box 3 assets will cost billions. The total bill is between 2.4 and 11.7 billion euros. The exact amount depends on a series of choices to be made during two parliamentary debates on the subject next week.

The fact that at the end of last year the Supreme Court abolished the return on capital tax in box 3 because this tax was based on a fictitious, provided distribution of capital. According to the Supreme Court, it was illegal. Wealthy Dutch people, who mainly kept their money in a savings account, paid relatively much tax, while their actual return was largely zero due to the low interest rate on the savings. A group of more than 60,000 people objected to the fictitious wealth tax.

Since then, the cabinet has pondered a solution to compensate the disadvantaged savers. On Friday morning, Van Rij presented the possible solutions that the Cabinet imagines and that the House will debate on Tuesday and Wednesday.

Four possible scenarios

According to the Secretary of State, there are four possible scenarios, two of which the government considers serious. Van Rij called for the possibility of automatically repaying all taxes paid to all Dutch people who had taxable assets in box 3 between 2017 and 2022. 2.7 million Dutch people would then receive a total of 26.5 billion euros back. Also, according to the Supreme Court, not the entire group is entitled to compensation: Those who invested the majority of their wealth probably did not pay too much tax because the actual return was higher than the fictitious one.

Van Rij also rejected the scenario where the tax authorities will calculate the actual return on capital for each taxpayer retroactively. It is, according to him, “impossible”.

There are two varieties left. In the first, which the government calls the ‘savings variant’, people with savings are taxed on the basis of the current savings interest rate, which has been zero in recent years. The investments are based on a multi-year average return, of which tax must be paid.

In the second usable option, the ‘fixed interest rate variant’, the tax authorities use the average return per years for investments. According to Van Rij, this variant comes closest to taxing actual returns. The disadvantage is that this option is somewhat more cumbersome than the savings variant: In bad stock market years, investors may be entitled to compensation, while in a good stock market year they owe extra tax on the paper – which should not be retroactive.

It still costs billions

The total cost of restoring rights varies greatly depending on the choices made, Van Rij says. If only the group of 60,000 savers who objected is compensated and the tax authorities use the savings variant, the costs remain relatively limited. If disadvantaged taxpayers who did not object also receive compensation, the account in the savings variant will increase to 6.9 billion euros. And if the government compensates all more than 2 million Dutch citizens who have filed a tax return in box 3 in recent years, using the fixed-rate variant, the cost will increase to almost 12 billion euros.

Van Rij did not want to express a preference on Friday: “We are now defining the analysis and the direction of the solution, we will discuss this with Parliament.” He pointed out that Parliament has adopted a proposal calling on the Cabinet to address all disadvantaged savers, not just the group of opponents.

The CDA member also kept a low profile when asked where the money was going to come from. Prime Minister Rutte said at the weekly press conference on Thursday that the government will probably be obliged to raise taxes due to several setbacks.

capital gains tax

The chosen compensation will also form the basis for the collection in the coming years, until a new system, which is to enter into force on 1 January 2025. Van Rij also laid the outlines of the future wealth tax on the table on Friday. The old return tax belongs to the past, in the future the real returns on capital will be the starting point. not anymore fiction with the tax authorities.

The government has chosen a so-called capital gains tax, where the actual growth (or loss) of capital forms the basis for taxation. A capital gains tax includes both capital income (interest, dividends, rent) and capital gains (increase in share price, increase in value of another home). In the last step, he deviates from a capital gains tax.

According to the government, taxation of capital gains has advantages over taxing capital gains alone. These are mainly due to the annual estimate and settlement of value increases, even if it is not sold. According to the Cabinet, a major disadvantage is that taxpayers may be faced with a hefty tax bill in an unusually good year (significant capital increase), while they have too few ‘cash’s to pay them (because the increased value of property is i.a. . not sold). has been or otherwise generated revenue).

The current assets in box 3 will also return in the new capital gains tax. Of the total assets of 470 billion in Box 3 (in 2019), about half were banking and savings products. Investments accounted for about a quarter of assets, real estate another quarter. The first two categories are relatively easy and quick to determine on an annual basis, provided that banks and UCITS can provide the necessary information to the tax authorities.

This is more difficult for the value development of real estate. The annual valuation via WOZ comes too late for the attack. Van Rij says he is looking for other parties who can provide a faster estimate of the appreciation (or decline) of secondary housing (the first house will also fall in Box 1 after 2025). The last bit of wealth (2.5 percent, or 12 billion euros) consists of cryptocurrencies, cash and annuities.

In a new system based on actual capital growth, the current exemption (the tax-free capital) of 50,000 euros per person also expires, writes Van Rij. Instead, there will be a discount on the final tax to be paid, a so-called tax-free income. So much is already clear, but much is not yet.

For example, it remains to be seen how losses can be settled (over how many years they may be spread). The rate at which the capital gain is to be taxed is uncertain so far. Van Rij mentions a range of options, ranging from a flat tax (a rate for everyone) to a progressive tax (the higher the capital gain, the higher the tax, compared to income tax).

And then there are problems with Dutch people who have assets abroad, with everyday changes such as marriage and divorce, with inheritance and gifts and with the relationship between the new box 3 and the existing box 2. This ‘fun box’ for entrepreneurs now often offers cheaper options than box 3. It is not inconceivable that box 2 should also be tackled with the new way of taxing assets.

Leave a Comment