Year-End Tips 2021: 11 Tips for Private Individuals
Have you already thought about what tax-related steps you need to take before the end of the year or what would be better to postpone until the new year? We inform you of the most important and up-to-date tips for private individuals.
1. Compliance with settlement clause mandatory
An annually recurring phenomenon is the settlement clause. If you married not in community of property or under a pre-nuptial agreement and a settlement clause was included in this agreement, it is important to remember to draw up an annual settlement with your spouse before the end of the year. The intentions of the settlement clause must be respected every year because if you do not do this it can lead to an undesirable situation in the unfortunate event of a divorce.
If this settlement has not taken place for many years, please contact us so that together we can look for a practical solution.
2. Give gifts before 2022
Owing to the Covid-19 pandemic the annual tax free amounts in 2021 have been temporarily increased by €1,000. Take advantage of this increased tax exemption by giving your gift (or making a donation) before 2022. Until 31 December 2021 you can given your children €6,604 tax free and your grandchildren €3,244. Gift tax is payable on anything given in excess of these amounts. A gift given to your child is subject to a tax rate of 10% and a gift for your grandchild is taxable at 18%. Should gifts in excess of €128,751 be given then these rates even double!
3. One-time increase in gift tax exemption
It is possible to give your child a large tax-free gift once. For 2022 the tax-free amount for the one-time gift was set at €27,231. The condition upon this was that your child should be between 18 and 40 years of age at the time of giving the gift. Did you forget to make use of this exemption before your son or daughter turned 40? Then you may still be able to use this increased one-time exemption by giving a gift to your son or daughter-in-law. But, once again, the condition upon this is that your son or daughter-in-law too, is not older than 40 years of age when you give them the gift!
4. Less box 3 tax in 2022?
Do you have a lot of assets and are you intending to make a major private purchase? Then pay for this item before the end of the year. If your assets are less at the end of the year, then you will be liable for less box 3 tax in 2022.
Do you have assets of more than €500,000? If so, before the reference date of 1 January 2022, consider putting your savings into a new B.V., investing them in an open-ended mutual fund, paying them as informal capital or share premium into your B.V. or converting them into a claim against your B.V. (i.e. making your assets available to the company for business use by creating a claim against your B.V.).
5. Variable income? Have you thought of averaging it?
Has your income varied over the last few years, with peaks and troughs, and has the pandemic possibly meant that your income in 2021 is nowhere near what you earned in 2020? Then remember to look at the options for averaging your income (or have them looked at). Averaging means looking at the tax which would have been payable had the income had been uniformly spread over a period of three years. You can then claim a rebate for the difference between the tax average and the amount actually paid. Please note, however, that a request for averaging can only be made after a final assessment has been issued for all the years you want to average.
6. Pay study costs before 2022
From 1 January 2022 the tax deduction from income tax for study costs will be replaced by the STAP budget subsidy scheme (Improving position on the employment market subsidy scheme: STAP). However, study costs, such as tuition or course fees (without student finance), including the required course materials paid for in 2021, will still be eligible for the deduction. From 1 March 2022 you can apply for a STAP budget from the Employee Insurance Administration Agency (UWV).
7. Do not include deceased partner’s home equity reserve
Under the present legislation in the event of the death of one partner the home equity reserve (EWR) is transferred to the other partner, as a result of which the remaining partner is faced with the home ownership history of the deceased partner. This will come to an end in 2022. The regulations surrounding the EWR will be repaired to return to the situation as it was before 2013. This means that the EWR will again be linked to the person of the taxpayer and will lapse by law in the event of death.
8. Pay mortgage interest for 2022 in advance
If you become subject to a lower tax rate in 2022 due to reaching retirement age (the age at which you can claim a state old-age pension, AOW) or for any other reason, you could consider paying the mortgage interest for the period up until 1 July 2022 in advance this year. The mortgage interest too, will only be deductible up to a maximum rate of 40% from 1 January 2022 (was 43% in 2021). An advance payment means that the interest can be deducted at a higher rate, so you pay less tax.
9. Home mortgage debt in box 1 or box 3: consider this before 2022
Further to the phasing out of the mortgage interest deduction, still limited to 40% in 2022, it may well be beneficial to have your mortgage debt fall in box 3. It is true that you lose the interest deduction in box 1, but on the other hand, your assets in box 3 will be less. There are various ways to do this, including either by having the mortgage conditions changed or by paying off the loan temporarily and then taking out a new loan.
10. Stamp duty exemption for first-time buyers under the age of 35
Are you under the age of 35 and planning to buy a home? As a first-time buyer you will not have to pay the stamp duty (or transfer tax) which is payable when buying a home. Since 1 April 2021 there has been the additional condition that the price paid for the property may not be more than €400,000, or the previously granted first-time buyer exemption will not apply. If you are over the age of 35, then 2% stamp duty will be payable. Investors pay 8% stamp duty.
11. Complete stamp duty ‘unforeseen circumstances’ statement
If you buy a property that will serve as your main residence, you will only have to pay 2% (or sometimes even no) stamp duty (transfer tax). When assessing this main residence criterion you may now take unforeseen circumstances into account which arise after the purchase, for example, due to death or a gift. This provision will be further widened in 2022. You may also take into account unforeseen circumstances that could arise after the purchase agreement has been signed but before taking possession. Therefore, remember to submit a completed stamp duty ‘unforeseen circumstances’ statement to the notary public (who is handling the conveyancing). What is most important here is that the purchaser had the intention of using the home as their main residence before the unforeseen circumstances occurred, but is no longer able to do so due to these circumstances.