2021 Budget Memorandum: Property

Property and home ownership are something of a recurring theme in the government’s tax plans. This year is no exception. The accelerated reduction in mortgage interest relief will continue gradually, while the changes to transfer tax are expected to have a significant impact. First-time buyers (up to the age of 35) will be completely exempt from this tax and purchases by investors will be taxed at a higher rate.

Accelerated reduction in mortgage interest relief on own home

Since 2014 the tax advantage available in the form of mortgage interest relief has been gradually reduced, if the interest is deducted at the highest income tax rate in box 1. In 2020 it is still possible to deduct mortgage interest at a rate of 46% In 2021 the maximum rate of the deduction will be 43% and in 2022 40%. A further reduction will be applied in 2023, with the result that mortgage interest will be deductible at a definitive maximum rate of 37.07%. This percentage corresponds to the rate in the first income tax band.

Please note: This rate reduction does not apply to the addition to taxable income for the notional rental value of your own home. This addition is therefore taxed at the maximum rate of 49.5%.

Notional rental value to be reduced, but to increase under secondment scheme

The notional rental value is a percentage of the WOZ value (value for the purposes of the Valuation of Immovable Property Act) of your home and is added to your income. This percentage will be reduced in 2021 from 0.6% to 0.5% for homes with a WOZ value of between € 75,000 and € 1,110,000. The own home deductible item will therefore increase. This reduction is intended to compensate for the scaling back of mortgage interest relief.

In 2020 the notional rental value has also been reduced for workers who have been posted to a different location and are taking advantage of the secondment scheme (‘uitzendregeling’). This reduction will be reversed with effect from 2021. The secondment scheme allows you to continue to designate your home as your main residence for tax purposes if you are temporarily posted to another location and are therefore not living in your home. In such a case it is still possible to deduct mortgage interest, subject to certain conditions.

Increase in transfer tax on residential properties that are rented out and non-residential properties

At present, transfer tax is charged at a rate of 2% on residential properties and 6% on non-residential properties. In the case of non-residential properties, such as commercial buildings and business premises, this tax was due to rise to 7% from 1 January 2021. This change will not come into effect.

Instead, the general rate will be increased to 8% from 2021. This rate applies to purchases of non-residential properties, such as commercial premises, as well as to purchases of residential properties that are not used as a main residence, e.g. houses that are rented out and holiday homes.

From 1 January 2021 the purchase of residential properties by non-natural persons (e.g. companies, housing associations, etc.) will therefore always be subject to transfer tax at a rate of 8%.

Tip: Do you want to invest in property and would you like to take advantage of the lower rate of transfer tax while this still applies? If so, the property must have been transferred to you by 31 December 2020!

Exemption from transfer tax for first-time buyers

From 1 January 2021 first-time buyers will no longer have to pay transfer tax when buying a home. 

The conditions that apply to this exemption are as follows:

the buyer is aged between 18 and 35, the buyer will live in the purchased home him/herself and this will be his/her main residence, and he/she has not previously benefited from the exemption.

The buyer must declare in writing that he/she fulfils these conditions. This declaration is required by the notary for the transfer tax return.

If a couple buy a house together, e.g. on a 50/50 basis, it is necessary to assess for each buyer whether the exemption can be applied. It is therefore possible that one buyer will qualify for the exemption, while the other has to pay 2% transfer tax on his/her share in the property.

If you do not fulfil these conditions when buying a home, you will have to pay 2% transfer tax. You are only entitled to this lower rate if you will be living in the home yourself. Otherwise the new rate of 8% will apply.

Tip: Are you aged between 18 and 35 and already have your own home, but want to buy a new home from 1 January 2021? If so, you still qualify for the exemption from transfer tax for first-time buyers, as you have not previously benefited from this exemption.