Dutch government's tax plans will allow higher incomes to deduct more mortgage interest

Homeowners earning a middle income or higher will be able to deduct more mortgage interest from their taxes next year, while the deduction for lower-income homeowners will become smaller, NOS reports based on the 2025 tax plan.

Currently, homeowners can deduct 36.97 percent of the mortgage interest they paid from the amount on which they have to pay income tax. Next year, this will be half a percentage point higher for homeowners earning higher incomes, while those earning lower incomes will be able to deduct over one percentage point less.

The change is related to the extra income tax bracket that will take effect next year. Currently, the Netherlands works on two income tax brackets - anyone earning over 75,518 euros per year pays the high rate of 49.5 percent, while anyone earning less pays 36.97 percent. The mortgage interest rate deduction is equal to the lower income tax rate.

But from next year, there will be an additional income tax bracket. The rate in the highest bracket will remain at 49.5 percent, while the one in the lowest bracket will drop to 35.82 percent. In between there will be a middle bracket for people earning between 38,089 and 75,518 euros per year, with an income tax rate of 37.48 percent.

For the middle and higher groups, the mortgage tax benefit will increase to 37.48 percent, while low-income groups will see this benefit fall to 35.82 percent.

The European Union and De Nederlandsche Bank have been pressuring the Dutch government to abolish the mortgage interest deduction for years. The deduction allows home seekers to borrow a higher mortgage which contributes to higher house prices. The fact that the tax benefit will increase for higher incomes next year is, therefore, remarkable.

The Eerste Kamer, the Dutch Senate, still has to approve the tax law.