Tired of Your Bleeding Savings?

| Your Financials

The Dutch tax system includes a wealth tax, not a capital gains tax. Learn how to mitigate this as much as possible here.

One of the hardest notions last December was the absolute certainty that 2021 will be again a year in which you bleed if you have a savings account and are subject to Dutch income tax on your wealth. This is because the Dutch tax system taxes you on a hypothetical return, not on the actual return.

Assume a couple (as in: Dutch tax partners) not participating in a pension scheme and risk averse with €700,000 on their savings account. Most Dutch banks now charge interest above €250,000 per account holder. This is because banks are charged interest on their deposits at the European Central Bank; they pass on the cost and – for the moment – not below the latter threshold. So our couple pays currently 0.5% or €2,250 per year to the bank. As tax partners they will be entitled €100,000 total tax-free wealth. The next €600,000 will have €7,564 income tax as a consequence. This a discouraging minus 1.4% return. No wonder savers scratch their heads. We believe this policy steers people towards more risk, if only to break even.

We regularly discuss managing one’s wealth with customers. And the issue above is top of the list.

  • To reduce the negative bank interest you can spread your savings across €199,000 per tax partner couple per bank. You will incur minor bank charges but you will still prevent costs. And you will benefit from the Deposit Guarantee System; the Dutch government indirectly guarantees €100,000 per person per bank (all product types are accumulated per bank).
  • There are possibilities to invest in groenfondsen or save in green bank accounts Groene beleggingen (belastingdienst.nl). This means in 2021 the first taxable €120,858 for a tax partner couple will be excluded from wealth tax. But there are conditions and limitations to these investments that must fit your risk appetite and your situation.
  • Are you forced to invest in mutual funds, bonds, the stock market? For several it must feel this way. And if you can stand the risk (i.e. you do not look at your phone every 5 minutes to see if the market is still OK) and can afford the risk (not all investments bring the expected return or even the principal back) then investing is a possibility after making sure it fits your plan.

Some people think they have invested enough, or do not feel comfortable with volatility impacting their efforts to save for later. Spoiler alert: you can still save and be taxed on actual return. But it means you will have to set up a company in the course of 2021. As the company will have limited activity the costs to set it up and to run it will be limited. When we compare the outcome of €350,000 in a savings account at an interest rate of 0.1% owned by a tax couple in private (Box 3) or in a company costing €500 per year (Box 2) the results are compelling:

  • Box 2 taxation € 0, net earnings minus €150
  • Box 3 taxation €3,868, net earnings minus €3,533.

The Dutch wealth tax system is under debate for considerable time. It is political “change currency” and may not stay the way it is now. At the same time, it is not expected to change significantly soon.

Saving in a Dutch limited liability company (BV) is more interesting than saving as individuals as long as the return is below approximately 3% (above which the opposite is more rewarding). As we foresee it will take some time before saving rates are at that rate this may be an interesting solution to many.