“Taxed elsewhere” relief for second home abroad

The Netherlands Income Tax Act 2001 leaves couples who entertain a tax partnership entirely free to “divvy up” between them their combined savings and investment basis, as an option which is available for the sum total in “Box 3” income, with the proviso that any individual assets that come under the “Box 3” category are excluded. Tax partners continue to have the opportunity to modify the allocation between them right up to the moment of the Tax and Custom’s Administration’s finalisation of the corresponding income tax assessment(s).

A dispute as to whether the calculation of the double taxation tax relief for a second home abroad had rightly been based on allocation in proportionality to how the – tax partnered – couple in question had allocated their combined “Box 3” capital yield tax base eventually found its way to the District Court. The “taxed elsewhere” relief comprises a reduction of the “Box 3” income tax in proportionality to the value of the non-Dutch based home relative to the overall “Box 3” taxation basis.

The District Court agreed that the calculation of the “taxed elsewhere” relief should mirror the allocation of the combined “Box 3” taxation basis the couple had chosen to apply, which in their case had been 79 percent to one tax partner against 21 percent to the other. They had applied the same ratio in allocating the value of the home they co-owned abroad. All of this followed from the “Box 3” taxation mechanism, prompting the conclusion that the couple between them were entitled to “taxed elsewhere” relief in a 79 to 21 percent proportion.

Dutch version: Aftrek elders belast tweede woning in buitenland

Relevant article: Owner-occupied home abroad