How to deal with the Box 3
Bedlam

How to deal with the Box 3 bedlam

We have received a great deal of feedback and questions regarding the recent developments around Box 3. A clear pattern has emerged:

• You understand that the notional return on savings has been aligned with actual returns, but this does not apply to the fixed percentages used for other investments and liabilities.
• The notional return on other investments – roughly 6% – is not currently achievable based solely on realised returns in today's economic climate. However, if you factor in unrealised gains, as the Dutch Supreme Court (Hoge Raad) and the legislator do, such returns are generally attainable.
The current deemed return system tends to be more favourable for savers and investors with relatively low Box 3 assets.
• For higher-risk and more successful investments, the current Box 3 regime may turn out more advantageous than for low-risk and poorly performing investments.
• The legislation based on fixed percentages based on deemed return will formally remain in place until 2028. However, there is doubt as to whether the intended new Box 3 system can be introduced by then.
• The tax rates in Box 2 and Box 3 are subject to almost yearly changes.
• On 6 June 2024, the Dutch Supreme Court ruled that the current Box 3 system still violates European law if the deemed return exceeds the actual return. This could mean that your Box 3 tax assessment may be reduced compared to what is prescribed by law. A rebuttal scheme is currently under development.

What can you do?

All the commotion has left many people feeling like they should take action. No one wants to miss the boat. But what are your options?

Should you file an objection against the Box 3 levy in your income tax assessment? You can, if you are able to demonstrate that your actual return was lower. But is filing an objection worthwhile? And how should you calculate your actual return?

In its rulings of 6 June 2024, the Supreme Court laid out several rules:

• The entire Box 3 capital must be included when calculating the actual return, including bank and savings balances.
• The return should be calculated based on the entire year's capital, not just the capital on 1 January.
• The tax-free capital threshold (heffingsvrij vermogen) cannot be deducted.
• The actual return refers to nominal return, meaning inflation is not taken into account. Both realised and unrealised positive and negative changes in value are included, along with direct income (such as interest, dividends, and rent).
• Costs may not be deducted from the return, with the exception of interest paid on debts that fall under Box 3.
• Finally, when determining the return for a given year, no account is taken of positive or negative returns in other years. Losses cannot be carried forward or back.

If this ruling affects your Box 3 income, you may have received a letter from the Tax Administration outlining the steps you can take and from when they apply.

If your actual return is lower than the statutory notional return, you may be eligible for a reduction in your Box 3 tax by invoking the Box 3 rebuttal scheme for the years 2017-2024. Although the rebuttal scheme has not yet been finalised, you can already begin preparing. Please note that not everyone will be eligible to use the rebuttal scheme: you must fall within the designated target group. Here are some practical tips and key considerations.

Important: In some cases, you may need to take action sooner. Always consult our advisors if you receive a final tax assessment. It may be advisable to safeguard your rights by filing a timely objection. From the date on the final assessment, you have six weeks to submit an objection. Please note that no objection can be lodged against a provisional assessment.

Important: For the years 2017-2020, taxpayers who did not file a timely objection to the income tax assessments on or before 24 December 2021 can only rely on the so-called mass objection plus procedure, which is still in its early stages.