Supreme Court Overturns Wealth Tax Bill: Implications for Taxpayers

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Recently, the Dutch Supreme Court invalidated a wealth tax bill that aimed to create a fairer system for taxing wealth. This decision has significant implications for financial planning, particularly for internationals living and working in the Netherlands. 

Background of the Wealth Tax 

Since 2016, the Netherlands has used proxies to determine the composition and returns of investment portfolios for tax purposes. Initially, the actual portfolio composition was ignored and instead approximated by these proxies. This system, however, led to numerous issues. 

Issues with the Proxy System 

Many taxpayers experienced significant disadvantages under this proxy system. For several years, the wealth tax was based on assumed returns rather than actual returns. This meant that even if an individual's investments did not yield enough to keep up with inflation, they were still taxed on an assumed higher return. This situation led to a decrease in the real purchasing power of wealth and created a tax basis that was often much higher than the actual returns. Consequently, taxpayers and their advisors expressed significant frustration and lodged numerous formal objections. 

Supreme Court Decision 

The recent Supreme Court ruling eliminates the taxation of these proxied returns on wealth. This decision presents challenges for financial planners advising clients on future financial strategies. The Dutch government is now under pressure to develop a new system for taxing wealth, one that excludes primary residences, associated financing, and pension capital, which are taxed separately. The urgency is high because national budgeting depends for more than €4 billion on timely wealth tax revenue. The Ministry of Finance had already started the ground work for a new bill, this time recognizing real returns (although definition and calculation issues remain). Cabinet has made quick changes in line with the Supreme Court ruling and has accelerated the legislative process with main features: 

  1. Each year, the actual return on all assets is determined, even if this return is made during the year. 

  1. Return is understood to mean both direct (such as profit on e.g. shares sold) and the unrealized return (shares gaining in value but not yet sold). Real estate is treated differently 

  1. The costs you can prove are deducted, as are actual interest amounts paid. 

  1. The return minus a small exemption is taxed at 36% (as is the current rate). 

  1. If there was a negative return in the previous year above a floor amount this may be offset. 

For real estate direct and indirect return are taxed under the following notions: 

Direct return is either: 

  1. The property (other than the home you live in) is rented out for 90% of the year or more. The rental income is taxed. Maintenance costs may be deducted, not improvement costs.  

  1. The secondary residence is used by the taxpayer (e.g. a holiday home). Here the direct return is 2.65% of the property’s WOZ (fiscal) value. Maintenance costs have already been considered in setting the percentage 

Indirect return is the increase in value of the property, only taxed when sold. If improvement costs (e.g. an extension) have been paid, these are offset against any profit from sale. 

Challenges Ahead 

This change has been discussed between many parties for some time so the Cabinet’s proposal can be considered no surprise. The political process however needs to be completed nevertheless so changes are still possible. On July 1 two bills become effective, impacting many investors in residential real estate negatively. It is conceivable the lobby will attempt to alleviate this tax increase somewhat.   

Furthermore, the outdated and complex computer systems of the Dutch Tax Department cast doubt on whether any rushed legislative changes will be effectively implemented before 2030. Many tax professionals are scrutinizing the Supreme Court's decision to understand its full implications for investment strategies. 

Immediate Implications for Investments 

One immediate consequence of the ruling is its impact on investments with fluctuating values or low cash returns. The decision also ignores costs associated with wealth components. We expect significantly increasing income tax on buy-to-let properties and creating liquidity challenges for illiquid assets. These assets can show significant returns but often do not distribute dividends, leaving taxpayers in a bind to pay income tax on unrealized gains. This raises the question: Do taxpayers need to maintain savings accounts solely to cover taxes on illiquid assets? 

If things stay as they are, having wealth means having and maintaining a long administration history. To calculate a capital gain two sales documents are sufficient. To deduct direct costs you need proof of what you expensed during ownership.  


The Supreme Court's decision marks a turning point in how wealth is taxed in the Netherlands. As the government works on a new taxation model, expats and their advisors must navigate a complex and evolving landscape.  

For those seeking personalized advice, consulting with a financial planner can help navigate these changes and optimize financial strategies in light of the new fiscal landscape.