Savings to be taxed on a mix of capital growth and gains in government's new plan

State Secretary Marnix van Rij’s (Finance) new plan for the savings tax is to tax the wealth in “Box 3” on a mixture of capital growth and capital gains, insiders told the Telegraaf. The capital growth tax levies a direct tax on the increase in value every year, and the capital gains tax only levies the tax when profit is cashed out. The latter would apply to things like real estate investments. The plan can count on coalition support, according to the newspaper.

Van Rij has to develop a successor for the Box 3 tax because the Supreme Court scrapped it at the end of 2021. The Tax Authority had collected tax on an assumed return on savings, while people received little to no interest from their banks. As a result, the government had to compensate many savers for the too-high taxes they paid and come up with a new way to tax savings and wealth in Box 3. The new tax will only be implemented in 2027 at the earliest.

Van Rij initially proposed a capital growth tax alone for Box 3, but that met heavy resistance from the VVD. The liberals feared that a capital growth tax would put real estate investors, for example, in trouble. If property prices rose significantly, they would receive a hefty tax bill, while that increase in value is only on paper, and they don’t necessarily have the cash to pay the tax.

The VVD suggested a capital gains tax alone, in which the Tax Authority would levy taxes once the profit on the Box 3 wealth is converted into cash, for example, when selling a building or paying out an investment.

Van Rij now settled on a compromise of using both forms. For “simple” forms of capital, like savings and stock market investments, Netherlands residents will pay tax on their growth every year. The gains tax will apply to other categories like real estate and investments in unlisted companies like startups and family businesses. Then, the owner will only pay tax when they profit from these investments, for example, when selling their shares or property.

Another new point in the new savings tax is that savers and investors can offset their losses. If their assets shrink in a certain year, they can deduct that loss from the increase in value in subsequent years, resulting in them paying less tax.

Exactly how high the Box 3 tax will be is still up in the air. The coalition wanted to ensure that the new tax yields at least as much as the previous one. In the coming years, the rate is set to increase from the current 32 percent to 35 percent.