The outgoing Rutte cabinet is at a loss when it comes to wealth tax on savings and investments in box 3. In 2027, a new system must be introduced, with capital taxed as much as possible on the basis of actual returns. Until then, there is a transitional system, but that may not be legally sustainable.
The bridging scheme that will apply to box 3 from 2023 looks at the actual amount of savings and investments that taxpayers have. However, so-called ‘fictitious returns’ are still used that are attributed to the assets. Tax will then be levied on the calculated proceeds from savings and investments, at a rate of 32 percent in 2023.
There are officially two categories in box 3: savings and ‘other assets’. A separate notional return applies to both.
A reasonable solution has been found for the fictitious return on savings by aligning it fairly closely with recent actual savings interest rates. For example, for 2023 a notional return of 0.36 percent applies to savings.
The problem now mainly lies with the fictitious return on other investments: this is a mixture of, for example, investments on the stock exchange, such as shares and bonds, crypto investments, but also real estate that falls into box 3. For the latter, think of a holiday home or a rented home.
The tax authorities work here with a fictitious return, which assumes a fairly arbitrary mix between shares, bonds and real estate. This leads to a notional return of 6.17 percent on the other investments in 2023.
Tax on savings and investments in box 3 is legally untenable
According to an opinion issued by the Advocate General in September, the fictitious return on investments is particularly questionable. According to the Advocate General, taxation based on an average investment return always leads to “discrimination of the below average and privilege of the above average.”
The advice of the Advocate General is usually followed by the Supreme Court. If that happens, the government may no longer levy taxes on wealth according to the system of the transitional regime. Then the government must find an alternative solution.
Regarding the new system that should come into effect from 2027, State Secretary Marnix van Rij of Finance has made a number of proposals. This involves partly switching to a system of taxation on actual returns, but partly also working with fictitious returns.
There is now a debate among tax specialists about whether this will work, because there will always be discussion about whether a fictitious return determined by the government is well in line with the returns from savings, investments and real estate.
Direct tax on wealth
Opposing Het Financieele Dagblad, tax specialist Philippe Albert, who works at accountant and advisor Baker Tilly and is professor of international tax law at Nyenrode Business University, advocates a different approach: make the levy in box 3 a direct wealth tax.
Albert does not agree with State Secretary Van Rij’s argument that this would be “legally extremely vulnerable”. According to him, it is more a matter of political unwillingness, he told the FD: “Perhaps the Ministry of Finance does not want to lose face or some political parties are necessarily against a wealth tax.”
With a direct wealth tax, a graduated approach is abandoned. Under the current system, with a notional return of 6 percent on investments and a tax rate of 32 percent, 1.92 percent tax is effectively levied on capital. And with a fictitious return on savings of, for example, 0.4 percent and a tax rate of 32 percent, you effectively levy 0.12 percent tax on savings.
With a direct wealth tax, you no longer look at the income from assets, but you determine a tax percentage that is applied directly to the assets themselves. This already happens with the municipal property tax (ozb). It looks at the WOZ value of homes and levies tax on it. The average property tax rate this year is 0.09 percent of the WOZ value for home owners.
A direct wealth tax on savings and investments naturally raises new questions. It is therefore logical to provide some protection to households with owner-occupied homes and a relatively low income against a tax on wealth that is tied up in stones.
A broader exemption for assets than the current 57,000 euros per person is therefore obvious, if you are going to tax this immediately. Furthermore, the tax rate for lower wealth should be very low, as this usually concerns households with mainly savings.
With the new legal complications surrounding the legality of taxation in box 3, the discussion about wealth tax is in any case open again.