Box 3 Guide

Background and introduction Dutch Income Tax

In 2001, after approximately 35 years, the Income Tax 1964 had to make way for the box system of the Income Tax Act 2001: box 1 for income from work and home, box 2 for income from substantial interest and box 3 for income from savings and investments.

More than twenty years later, Box 3 appears to have been shaken to its core due to all the criticism from society regarding the unrealistic fixed returns imputed over savings in this box and the social demand for taxation based on actual returns.

Christmas Judgment

The final blow came from the Dutch Supreme Court in 2021 with the Christmas Judgment. The Dutch Supreme Court ruled that box 3 as of 2017, was no longer tenable because it violated the fundamental rights of taxpayers. This judgment by the Dutch Supreme Court has caused quite a stir, but has also raised many questions.

The Dutch government had previously been able to parry the social demand for taxation based on actual rather than deemed returns with technical arguments. However, now the government has to come up with concrete proposals for a taxation system based on actual returns. In addition, the Dutch cabinet had to offer legal redress to the taxpayers who had been duped.

Legal redress and bridging regime

Two laws on the box 3 system were adopted on December 20, 2022. One of them concerns the codification of the legal redress following the Christmas Judgment. The second law regulates the bridging legislation for the years 2023 to 2027. 

Legal redress and bridging regime are still inadequate 

On June 6, 2024, the Dutch Supreme Court ruled that the restitution, as legally regulated, is still insufficient. According to the Supreme Court, taxation should be based on actual returns. According to the current planning, the bill for additional legal redress will be submitted to the House of Representatives in the first quarter of 2025.

System by the Dutch Supreme Court

Anticipating new legislation from the Rutte cabinet and the Schoof cabinet, the Supreme Court itself provides for legal redress in current cases based on the calculation of actual returns.

The following principles apply:

• Actual returns include not only regular benefits from assets (such as interest, dividends, and rent) but also changes in the value of those assets.
• Both positive and negative as well as unrealized changes in value are included.
• Interest on box 3 debts is deductible, but other costs are not.
• The actual return is based on nominal returns, so no inflation correction takes place.
• Positive or negative returns in other years are not taken into account (no 'loss carry-over').
• The tax-free allowance (‘heffingvrij vermogen’) is not taken into account when determining whether taxation based on actual returns is more advantageous than the law-based legal redress (‘Wet rechtsherstel’) or the 'regular' box 3 legislation.
• The income for personal use of a home is set to zero.

Proposal tax on actual returns

On September 8, 2023, the cabinet published the proposal ‘Wet werkelijk rendement box 3’ ('Actual Return Box 3 Act') for consultation. On June 14, 2024, it forwarded an amended bill to the Council of State for advice on June 14, 2024. The main rule of this design of the new box 3 system is to tax actual returns according to an asset accumulation system. This means that both income, such as interest and rent, and changes in value are subject to taxation annually. For some assets, there is an exception to this, and tax is only levied when a capital gain is actually realized (such as when selling real estate). The advice published by the Council of State on December 2, 2024, however, states that the bill encounters significant legal and practical objections. The Council of State therefore advises not to implement the bill in its current form. The proposed system should come into effect on January 1, 2028.