Right now, everyone is looking for ways to make his/her money yield more than in a savings account at historically low interest rates. Investing in a vacation home for rental can be one such way. In doing so, the tax side of things should not be underestimated. But if you arrange it smartly, you can sometimes get a nice after-tax return. The following discusses the situation where the property is purchased as an investment in private or in the BV.

Private, income tax

If you live in the Netherlands, you must report all domestic and foreign income and assets in your income tax return. A domestic or foreign vacation home as an investment belongs to the box 3 assets for income tax purposes. In the case of ground lease, you reduce the WOZ value by the value of the future ground lease canons. The value of the future leasehold canons is seventeen times the annual leasehold canon. The reference date for box 3 is January 1 of each tax year. Incidentally, it does not matter for the valuation of the vacation home whether you exclusively use the vacation home yourself, exclusively rent it out, or both. In principle, you enter the WOZ value of the home in box 3 as you do for your own home in box 1.

If you have borrowed money for the purchase of the vacation home, you may include the debt in your tax return as a box 3 debt. However, there is a non-deductible threshold of € 3,200 (partners € 6,400). The debt therefore reduces your ultimate taxable capital.

The vacation home is not subject to the notional rental value and the rental income is tax-free. Interest on the loan and expenses incurred cannot be deducted. Only the assets minus the debts are taxed in Box 3. The yield tax applicable in box 3 depends on the total of your net assets. You can find it at www.Belastingdienst.nl, among other places. You can make a simple calculation of the tax due as of Jan. 1, 2021 at www.berekenhet.nl.

Foreign holiday home

If you have a holiday home abroad, there are a few points of interest:

■ For properties for which no WOZ value has been established, such as foreign holiday homes, enter the fair market value in your tax return.

■ Under the tax treaties the Netherlands has concluded with other countries, the country where the holiday home is located is usually allowed to levy tax on the income from or value of the home. The Netherlands is also usually allowed to levy because, as a resident of the Netherlands, you are taxed on your world income and assets. To avoid paying tax twice on the property, ask for ‘double tax avoidance’ in the Dutch income tax return. This relief is calculated on the declared value of the holiday home minus any debt related to that home. Therefore, taking on a higher debt for the purchase of the foreign holiday home does not necessarily lead to lower taxation in the Netherlands if the home is exempted by ‘the prevention mechanism’ anyway. You would be wise to pay extra attention to this aspect before making a decision.

■ Since the introduction of the changed calculation system in box 3 from 2017, you often still pay a small amount of box 3 tax in the Netherlands on the foreign holiday home. We addressed this in our newsletter of 4 June 2018.

Note: Have you forgotten to apply for double tax relief for your foreign holiday home? Still apply for the avoidance. A request for ex officio review must be filed within 5 years of the end of the relevant tax year. So in 2021, you can still submit such a request for the years 2020, 2019, 2018, 2017 and 2016.

BV, corporate income tax

Savings can, of course, also be in your BV. Savings in the BV are usually meant ‘for old age’. Even with that savings, you can consider buying a holiday home for rental. This can be done roughly in three ways:

• Your BV pays out the savings as a dividend and you use the net dividend to purchase the holiday home privately;
• Your BV lends an amount to you and you use the borrowed amount to purchase the holiday home privately;
• Your BV purchases the holiday home as an investment (whether or not combined with a loan from a bank or other financier).
• You would be wise to calculate these three options (or have them calculated) before deciding to buy the holiday home with money from the BV Depending on your personal circumstances and wishes, an adviser can calculate which is the most interesting option for you. In this article, we limit ourselves to option 3: the BV buys the house with the savings.

Note: in the future, investing with borrowed money from your BV is likely to become unattractive in certain cases. An ‘excessive borrowing from your own BV’ bill has now been tabled. The bill aims to tax from 2023 the portion of the total sum of debts to the own company to the extent it exceeds €500,000 as (notional) income in Box 2. Box 3 debts to the private limited company certainly count for this. An exception applies to owner-occupied home debts in box 1.

E.g. buys the holiday home as an investment

An E.g. established in the Netherlands pays corporate income tax (VPB) on its profits. For 2021, the tax rate is 15% on the first €245,000 of profit and 25% corporate income tax (VPB) is due on the excess. E.g. pays VPB on the net (rental) income from the property. A gain on the sale of the property is also subject to VPB. Deductible costs include in particular park and management costs, maintenance costs, depreciation of inventory, mortgage interest, fixed charges and operating costs. Depreciation on the purchase cost of the property is only allowed until the so-called ‘floor value’ is reached. The base value for a let holiday home is equal to the WOZ value. You are therefore allowed to depreciate until the WOZ value is reached.

Note: if the E.g. distributes the net profit after taxes to you (dividend), you pay 26.9% income tax on this in your private capacity. Assuming that the E.g. pays 15% VPB and you pay another 26.9% income tax on the dividend, the combined tax rate on the net rental income is 37.865%.

Preventing double taxation

So on the net income from the property, the E.g. has to pay corporate income tax in the Netherlands. Under the tax treaties, the E.g. can also claim ‘double tax relief’ on this income. This relief is calculated on the ratio: net income from foreign activities divided by net income from all activities times the tax due in the Netherlands. E.g. if the only activity of the E.g. is renting out the holiday home, the E.g. will no longer pay VPB in the Netherlands on the income from the holiday home. In that case, when the profits are distributed from the E.g. to private persons, only 26.9% income tax is paid. Depending on the tax the E.g. has then paid abroad, the tipping point for weighing up investing in private or in the E.g. will shift (see below).

Private use in the case of the E.g.’s holiday home

In the situation where the E.g. buys the holiday home and you also use it yourself, the E.g. must also charge you a business rent. If you are allowed to use the E.g.’s holiday home without paying a fee for it, the tax authorities will tax this “private benefit” on you as a dividend. The missed rent is then (notional) added to the E.g.’s income on which VPB is due and is then taxed as a dividend to you privately with 26.9% income tax. The total taxation on the value of the private use is then 37.865%.

Purchase property privately or in the E.g.?

If you have the choice of buying the holiday home in private or in the E.g., which is the best choice? This is difficult to say in general terms. After all, you cannot yet know whether the value of the property will increase or decrease or whether you will be able to cover the costs with the rental income.

Roughly speaking, the rule of thumb is that if you can achieve a net pre-tax return on the rental of more than 3.5% and do not expect the value of the holiday home to decrease, buying the property privately will probably be the most interesting choice from a tax point of view.

Levy of other taxes

A property abroad will (almost always) also be taxed in the country where the holiday home is located according to the applicable rules in that country. There are also countries that do not tax income but the value of the property. Be well informed in advance about the tax treatment of the property abroad. The mere difference buying in E.g. or privately can already lead to a considerable difference in taxation abroad. Other taxes you may have to deal with both abroad and in the Netherlands include municipal taxes, tourist tax, transfer tax (8%), gift and inheritance tax and turnover tax (VAT). Although the levying of turnover tax is harmonised within Europe, the VAT treatment of a holiday home varies considerably from one country to another. Therefore, be well informed about taxes when buying and letting a holiday home. Below, we will elaborate on aspects of turnover tax when buying a holiday home in the Netherlands.

Please note: some countries also tax profits on the sale of a holiday home, even if you have purchased the holiday home as a private individual.

VAT and the holiday home in the Netherlands

An additional financial advantage when renting out a holiday home may lie in VAT. If you or your E.g. ‘opts’ for entrepreneurship for VAT, you can reclaim the VAT on all costs and investments and the VAT in the construction costs or purchase price from the tax authorities. This can provide a financial benefit. Opting for VAT entrepreneurship can therefore be advantageous. Although the rent is taxed, it is taxed at the low VAT rate (9 per cent). This while you can reclaim VAT on the costs of purchase, furnishing (furniture, crockery, bedding, household appliances, etc.), use (gas, water, electricity, etc.) and maintenance (cleaning, repair, etc.). This ‘input VAT’ is almost always 21%. If you recover this input tax, your net return increases significantly. If you have the property built new, this can result in tens of thousands of euros in tax benefits, because the cost of new construction also includes 21% input VAT that you can reclaim from the tax authorities. For example, if the construction cost including VAT is €242,000, you can recover up to €42,000 in VAT. The construction of the house will then only cost you a net €200,000. You can reclaim not only the VAT on the construction of the house, but also the VAT on the cost of purchasing the interior and the VAT in the annual costs. So it makes sense to keep all receipts!

VAT entrepreneurship

When a holiday home is purchased and operated to obtain rental income from it, the owner can be classified as an entrepreneur for VAT purposes. This is the case, according to policy at the Tax Office, if the property is actually rented out for at least 140 days (20 weeks) per year. It must be rented out as part of a short stay (stay of the same person for a maximum of 6 months). In that case, the tax authorities will assume that there is VAT entrepreneurship. If the owner is only going to use the holiday home for himself, there is no question of VAT entrepreneurship and he is not entitled to deduct input VAT.

Note: if you rent out the holiday home for less than 140 days per year, then, depending on the circumstances, there may still be an exploitation of an asset to obtain sustainable income from it and you may be regarded as a VAT entrepreneur. To assess your personal situation, contact an adviser.

Registering as a VAT entrepreneur

To be entitled to a VAT refund, you must have the (objective) intention to rent out the holiday home at the time of purchase/construction. You or your E.g. must register as a VAT entrepreneur with the Tax and Customs Administration as of the date on which the purchase agreement or construction contract was concluded. Use the form ‘Opgaafaf startende onderneming’ for this purpose. You can download this form at www.Belastingdienst.nl.

Rental income taxed

The rental income received by the owner as a VAT entrepreneur includes 9% VAT. The landlord must pay this VAT ‘on return’ to the tax authorities. Usually, a quarterly VAT return must be filed. If the return shows that you have to pay VAT to the tax authorities, you must do so at the same time as submitting the tax return form. So do not wait for an assessment notice and do not forget to file a return either, otherwise you will be fined for default.

Input tax

If the owner is a VAT entrepreneur, he can reclaim the input tax (VAT in the costs) at the time of purchase. The VAT on the (purchase) costs of the home can be reclaimed in full from the tax authorities in the first instance, if the owner intends to rent out the vacation home to guests for short stays, subject to VAT. Not only the VAT on the purchase can be reclaimed, but also the VAT on other costs and charges related to the vacation home or its use. The input VAT reduces the tax to be remitted and is included in the same tax return.

Review

After all VAT has been reclaimed, this refund is not yet final. For 10 years after the purchase/construction of the property, an annual assessment must be made as to whether part of the input tax reclaimed must be repaid to the tax authorities. Repayment may come up in a number of cases:

• The property is sold and there is no VAT-taxed delivery;
• The lessor opts to apply the small business allowance (KOR, see below);
• Private use increases (without paying a fee for it);
• Vacancy (see explanation below).
  It must be assessed annually whether one of the aforementioned cases applies. If so, a correction of the VAT already recovered must be made. This correction on the VAT in the purchase/construction takes place in the year of purchase and the following 9 years. These 10 years are also called the review period. For movable property (interior, etc.), a review period of 5 years applies. An example for clarification:

Jurgen’s situation:

Jurgen bought a vacation home 7 years ago and he rents it out for short stays.
When he purchased the vacation home, Jurgen fully deducted the VAT. The amount of VAT involved was €15,000.
Jurgen pays VAT annually on the rental.
Jurgen’s customers are private individuals. They cannot deduct VAT.
Jurgen’s finances:

His turnover including VAT is € 15,260.
The rent includes 9% VAT is € 1,260.
He has had maintenance costs of € 2,000 excluding VAT and the input tax is 21% is € 420.
On balance, Jurgen pays € 840 VAT in year 7.

In year 8, Jurgen decides to rent out the house for only 50% of the available time and to use the rest himself without paying a fee. As a result, Jurgen’s finances change as follows:

His turnover including VAT is € 7,630.
The rent includes 9% VAT is € 630.
He has (still) had maintenance costs of € 2,000 excl VAT and the input tax is 21% is € 420.
The input tax in the costs is no longer fully deductible, but 50%, which is € 210. Due to the increase in own use, the input tax on the purchase of the house must be revised, because the revision period (9 years following the year of occupation) has not yet expired. In year 8, Jurgen must revise 10% of the €15,000, which is €1,500, input tax. But because he is still using the property for 50% VAT-taxed rentals, the input tax to be refunded is not € 1,500 but € 750. This then applies annually for the remaining three years of the review period if the situation does not change. On balance, Jurgen then pays in year 8 € 1,170 VAT (€ 630 – € 210 + € 750).

Concurrence of sales tax and transfer tax

If you buy an existing home that has already been put into use in the Netherlands, you will always owe transfer tax. Since January 1, the tax rate is 8% for second homes and vacation homes.

If since the 1st occupation the home is not older than 2 years, 21% VAT is due on the purchase instead of 8% transfer tax. This also applies if the home is resold within 2 years of its 1st occupancy.

If the 1st occupation of the house was more than 2 years ago, in principle 8% transfer tax is due. A VAT delivery of the property after those 2 years is only possible if the buyer will also use the property for VAT taxed rentals. The buyer must therefore be a VAT entrepreneur and not use the KOR. If the buyer can reclaim the VAT, the buyer will owe 8% transfer tax. This is if the buyer buys the property ‘costs copper’ (k.k.). If the property is purchased “freehold”, the seller pays the transfer tax.

Why not a vacation home?

As shown above, there is quite a bit involved in the purchase and rental of a vacation home as an investment. It seems ideal the rental of a (vacation) home, but be well informed by a specialist if you intend to buy a vacation home. And not only for the domestic situation but also the impact of foreign legislation and taxes should not be underestimated. There are often vipers lurking under the grass.

Some tips and concerns:

■ Look carefully at costs and taxes.

Especially abroad, these can differ greatly from Dutch standards. But also pay close attention to park and management costs if you ‘outsource’ the rental.

■ Be careful with rented or leased land.

Is the land on which the vacation home is located owned by the homeowner or must it be rented or leased? What will the cost of renting and leasing do over the next few years? What is the term? Be well informed about the differences and consequences when selling.

■ Choose a reliable business partner.

If you don’t have the time, inclination or knowledge to deal with the purchase or rental of a vacation home yourself, find a good business partner who will help you with this or who will completely relieve you of it. Research the reliability of the intermediary via the Internet and the Chamber of Commerce, for example. Be critical of the projected returns.

■ Beware of “timesharing.

Just Google “timeshare,” read and shudder. We wouldn’t get involved anytime soon.

■ Oversupply and disappointing returns.

Compare supply carefully, there is very much supply right now. Look at location, location and location, as well as quality and rental options to large groups, as short ‘family getaways’ are becoming increasingly popular. Due to the increasing popularity of short vacations and because ‘everyone’ is looking for a return on savings, a lot of vacation homes are currently being built and sold, both in the Netherlands and abroad. Both in existing parks and new parks, vacation homes are popping up like mushrooms. The danger of oversupply is lurking. With oversupply, there is a chance that returns will fall because occupancy rates are disappointing. There is also a chance that the purchase price in relation to construction costs and returns will become “out of balance. As a result, the sale of the property may yield less than the property cost. Again, it is simply supply and demand that determines the price. Thus, if the demand goes away that will impact the return and value. If you have multiple properties, in different parks, in different sizes, designs, luxuries and price ranges your risk spread will be the greatest. Basically, it’s like a stock market for stocks but in bricks and mortar!

Source: https://www.schootenadvies.nl/vakantiewoning-als-belegging-2/