Cabinet will not introduce new Box 3 savings tax, causing €2.5 Billion shortfall

The Dutch government’s proposed overhaul of the Box 3 tax system, which taxes savings and investments, has been officially delayed by one year, State Secretary for Fiscal Affairs Tjebbe van Oostenbrugge announced. The decision follows a ruling by the Supreme Court that found the current system in violation of the European Convention on Human Rights.

The delay is expected to cost the government 2.5 billion euro (2.7 billion dollars). To cover the shortfall, the fictitious return rate used for tax calculations will be increased, and the tax-free allowance for assets will be reduced from 57,000 euros to just over 52,000 euros. These changes will take effect in the interim as work on the new system continues.

In June, the Supreme Court determined that the existing Box 3 tax unfairly burdened taxpayers by assuming a fixed return on savings, investments, and additional real estate. This assumption did not reflect the historically low interest rates on savings accounts for years, causing many citizens to pay taxes exceeding their actual returns. The court’s ruling required the government to create a system that taxes individuals based on actual returns rather than presumed ones.

The government’s initial plan involved a shift to taxing actual returns through a combination of capital growth and capital gains taxes. Under the proposal, most assets would fall under capital growth tax, while real estate and shares in start-ups would be subject to capital gains tax. Additionally, a flat-rate approach was suggested for returns from real estate that is not rented year-round.

The Council of State, the Netherlands’ highest administrative court, issued a critical advisory statement earlier this month, stating that the proposed system was too complicated for both taxpayers and the Dutch Tax Office (Belastingdienst). According to the Council, the reforms would lead to poorer service quality, limited opportunities for consultations with tax inspectors, and inadequate oversight. “It will lead to poorer service provision, limited opportunities for preliminary consultation with a tax inspector, and insufficient supervision,” the Council said.

The Council also expressed concern about the significant administrative burden the new system would place on taxpayers. Approximately 1.6 million citizens would be required to conduct complex asset comparisons annually under the proposed rules. “The government is counting too much on citizens’ ability to act,” the Council said in its report.

The Council of State also questioned the government’s expectation that the new system would generate the same amount of revenue as the current one. “Strict adherence to this principle hinders the careful and integral assessment of the various interests,” it said, emphasizing the need for a balanced approach to tax reform.