Year-End Tips 2023: 9 Tips for Private Individuals
Have you already thought about how you can best respond to the many changes that will come into effect in 2024? We provide you with the 9 most important current tax tips.
1. Prevent unused tax losses expiration
Losses incurred in 2023 from income from employment and home ownership can only be offset against profits earned in 2020, 2021, and 2022 (carry-back), and/or future profits earned in the years 2024 to 2032 (carry-forward). After 2032, the possibly to off-set these losses will expire. The possibility to off-set losses from tax year 2014 will expire by December 31, 2023. To prevent this expiration, it may be possible to increase the result by, for example, deferring costs and expenses or allowing provisions to be released. Alternatively, hidden reserves within your assets and/or activities in your business may be realized.
2. Determine a guarantee commission from your private Limited Company (B.V.)
If you, as a Director and Major Shareholder (DGA), can be set liable in private of a loan granted to your B.V. by the bank, you should negotiate a commission fee for this with your B.V. After all, the bank can set you personally liable for repaying of the debt, including interest, if your B.V. is unable to do so. In that case, we recommend charging a commercial guarantee commission fee to your B.V. to prevent the Tax Authorities from correcting this (potentially even with fines). The fee for the guarantee is considered income from a privately owned asset used by your own company and is taxed as income from other activities in box 1. The B.V. can deduct the fee as business costs. In case you will be set liable, the amount you need to pay can be taken into account – under conditions – as negative income in your Dutch income tax return.
3. Business Succession
In (partial) business succession and estate planning, it can be advantageous from a tax perspective to gift (a part of) your sole proprietorship or a package of shares in your B.V. to your future heirs or the intended business successor. The Inheritance Tax Act provides certain facilities under specific conditions, including conditional ones. These business succession facilities (BOR) can also be applied in the event of death.
However, the corporate structure must meet specific requirements. In case of indirect share interests of less than 5% it is no longer possible to apply the BOR. The amount of income tax due can also be deferred under certain conditions (DSR). In the case of a gift of (a part of) your sole proprietorship, the recipient must generally have been a co-entrepreneur for at least 36 months, and in the case you gift the shares in your B.V., the recipient must generally have been employed for at least 36 months.
The BOR will be amended in 2025. It is possible that the BOR will be further reduced in the near future. The government has announced its intention to address remarkable tax structures and negatively evaluated fiscal regulations in the coming years. If you would like to use this tax facility, do not wait too long.
4. Allocating certain sources of incomes to your non-working partner
Since 2023, a taxpayer with low income no longer receives a tax refund based on the general tax credit, the labor tax credit, and the income-dependent combination credit (partially). Partners with no income often cannot fully utilize all tax credits on their own. This can be avoided by for example allocation of dividend income to the partner with no income. This is convenient because with this additional income, it is possible to make better use of the tax credits and combined the fiscal partners will pay less taxes.
Additionally, this partner with little or no personal income can utilize its tax credits entitlements by allocating the entire or partial assets of the partner to its Dutch income tax return.
5. Reducing your taxable asset amount in Box 3
January 1st is the reference date for the taxation of your Box 3 assets. If the value of your assets is higher than the tax exemption relief, you will need to pay taxes on your assets. Depending on the amount and compilation of your assets, it is possible to limit or avoid Box 3 taxation. You can consider reducing your assets by making a gift or to deposit a life annuity pension before the end of this year.
You can also reduce your assets by transferring it to another box. For example, by transfer investments in a private limited company (B.V.), the taxable asset amount in your Box 3 will decrease, and the amount of taxes due on your Box 3 assets will be reduced. Whether this is the best option for you depends on the expected return of investment and the type of assets. Want to know more about the possibilities? Please contact your HBK advisor.
6. Box Hopping: Reference Date Arbitrage
Under the current Box 3 system, there are three different categories, each with its own deemed return of investment percentage: bank, savings and deposit accounts (0.36% (preliminary)), other assets (6.17%), and debts (2.57% (preliminary)). The composition of assets on January 1st plays a part in the taxation. Because each category has its own deemed yield, it can be advantageous from a tax perspective to ensure that the composition of assets is changed before the reference date. The legislator wants to prevent abuse of this, and has included the so-called reference date arbitrage in the law. With this, the legislator aims to prevent assets in Box 3 from being temporarily converted to another category to reduce the amount of taxes due.
Avoid temporary movement of assets between Box 3 (income from savings and investments) and Box 1 (employment and home ownership) and/or Box 2 (income from substantial interest). An asset that is part of Box 1 or 2 for a period of no more than three consecutive months (and both before and after is part of your Box 3) is also taken into account as a Box 3 asset, if during this period there is a reference date for Box 3 taxation. Unless you can demonstrate that you had businesslike reasons. For Box 3 assets allocated to a tax-exempt investment institution (VBI) or a foreign investment entity in which you have a substantial share interest, a reference period of eighteen months needs to be taken into account.
7. Discussions regarding taxation in Box 3
Currently, there are several ongoing legal proceedings with different courts regarding the application of the deemed return of investments based on the ‘Wet Rechtsherstel Box 3 / Overbruggingswetgeving Box 3’. The Attorney General has also issued an opinion stating that the Wet Rechtsherstel Box 3 provides insufficient legal remedy for the category of other assets.
At present, the sustainability of the ‘Overbruggingswetgeving Box 3’ is uncertain. The Supreme Court might decide that a rebuttal arrangement is necessary if the actual return of investment is lower than the deemed calculation based on the law.
Tip! Have you already documented your actual costs and earnings for 2023? If not, we advise you to gather all received income and costs related to your Box 3 assets. Maybe you need this information to reduce the amount of taxes due on your assets.
Tip! For 2024, we also recommend keeping track of these costs and earnings related to your Box 3 assets. You may need this information to reduce the amount of taxes you need to pay on your asset amount.
Note! If you have Box 3 assets and you receive a final assessment, we advise you to file an appeal for these assessments on time. If the Supreme Court decides that the current law provides insufficient legal remedy and taxation should take place based on the actual return of investment, filing an appeal on time will preserve your right to a potential tax reduction.
If you do not file an appeal on time, you will likely lose the right to reduce the amount of taxes due on your Box 3 assets.
8. Additional tax exemption in Box 3?
In Box 3, you can create an additional exemption by investing (a part of) your wealth in a so called green investment fund. In 2023, the tax exemption amounts to € 65,072. This can even increase to a maximum amount of € 130,144 if you have a fiscal partner. Additionally, for a green investment fund, you receive an additional tax credit up to a maximum amount € 911 for partners.
9. Have you already utilized the gift tax-free exemptions for 2023?
Take advantage of the annual gift tax-free exemptions in the gift tax law this year and reduce your Box 3 asset amount. If you haven’t made a gift yet, you can gift a gift tax-free amount of € 6,035 to your children and € 2,418 to your grandchildren or to others in 2023.
Additionally, you can benefit from a one-time increased gift tax-free exemption, allowing you to raise the annual gift exemption for children between 18 and 40 years old. For 2023, the following amounts apply:
- Free disposable gift tax-free exemption: € 28,947
- Expensive study: € 60,298
- Purchase of a primary residence: € 28,947
To make use of these one-time increased gift tax-free exemption, certain conditions should be met, such as the purpose of the spending, age, no previous usage of this gift tax-fee exemption, and filing of a gift tax return. If your child does not meet the age requirement, but his/her partner does, the parent-in-law, may still be able to use the increased exemption.
You can also utilize the one-time increased gift tax-free exemption for the purchase of the primary residence for gifts to others besides your own children aged between 18 to 40 years.
The filing of a gift tax return for gifts made during the calendar year 2023 must be filed before March 1, 2024.
Gifts related to the primary residence must be spent no later than the second year after the year in which the increased tax-free gift exemption was first claimed. If you made your first gift under this exemption in 2022, this gift must be fully used by the end 2024 at the latest. This also applies to any additional gifts made in 2023 if the full exemption was not used in 2022. If the gift was made in 2021, make sure it is utilized before the end of 2023!
Note! The one-time increased gift tax-free exemption for the primary residence for both children and others will be abolished from 2024. However, it remains possible to continue using the general one-time increased gift tax-free exemption for your children.
Tip! If you would like to financially support others, besides your own children, with the purchase of their primary residence, make sure the amount of the gift is transferred before the end of this year.
Note! The Senate still needs to vote on the 2024 tax plan and the adopted motions. Unfortunately, the voting will only take place just before Christmas. Until then, it is uncertain whether the tax plan and all amendments will come into effect. Given the short time frame between the voting within the Senate and the end of the year, we recommend, despite the uncertainty, to prepare for this in a timely manner. Therefore avoiding last-minute challenges to anticipate and as a result potential undesirable tax consequences.
While utmost reliability and care have been aimed for in the compilation of the Year-End Tips 2023, this version has been put together based on knowledge up to November 9, 2023. We have assumed that the Senate will approve the Tax Plan 2024 and the adopted amendments. Our organization cannot be held liable for any inaccuracies and their consequences.