Reduced transfer tax for first-time buyers

It’s late 2020 and a hot topic is the reduced transfer tax for starting homeowners. What’s the excitement all about?

Transfer tax – what is it?
In the Netherlands tax is due when you purchase a property. The proceeds are used for funding general Government costs, such as health care and infrastructure. It was introduced under the Spanish occupation, in 1569, at a rate of 10%. After the Eighty Years’ War with the Spanish, which lasted 68 years (Trivial Pursuit question), the Dutch state very much liked this source of income, although the rate was reduced to 2% over time. Now it is being updated again.

What will change?
Starting from 2021 there will be a 0% rate, a 2% rate and a 8% transfer tax rate.

You qualify for the 0% transfer tax rate if:

– you purchase a home in the Netherlands after 1 January 2021;

– the house is purchased by a private individual, who will live in the house him-
or herself and has made a statement to that effect;

– the buyer is between 18 and 35 years old;

– the buyer applies for the first time for the 0% transfer tax rate.

The current 2% transfer tax rate will still apply after 1 January 2021, when the conditions set out above are not being met. A condition is that the home purchased is used as the buyer’s own dwelling and is not commercial property.

The 8% transfer tax rate applies to all situations in which property is purchased that does not qualify for the 0% or 2% transfer tax rate. It applies for example to commercial property, such as an office, shop or restaurant. It also applies if the buyer of the property, whether commercial or non-commercial, is a company or legal vehicle. This rate also applies if the buyer of the property is going to rent out the property; or if the property is not rented out, but only fixed up and sold immediately for a higher price.

Tax is exciting
The aim of the new 0% transfer tax is to make it easier for first-time buyers to get a foot on the property ladder. Even though the property doesn’t necessarily have to be the first property the buyer owns, most people between 18 and 35 will be first-time buyers. It is interesting to note that the 8% rate applies if a company purchases a private home. Unless an employer likes to facilitate its employees with housing, we think a company should avoid purchasing homes. The Netherlands does not use the concept of capital gain tax for private individuals, but it does use this for companies. Under the current market situation, a gain is very likely to be achieved at sale. This means that a company has to pay capital gains tax when buying a home, in contrast to a private individual. This means that the profit for the company is reduced, making it a rather less profitable business to buy homes – better leave this to private owners!

Written by Arnold Waal
OrangTax