New system ensures you and your tax partner receive the maximum benefits

It’s not every day that the Belastingdienst offers to do something to help divide up your allowances to your benefit…but this is exactly what is happening next year. Blue Umbrella explains.

Due to changes in the rules about the provisional assessment, the Dutch tax office will automatically allocate certain benefits between tax partners to your best advantage.

If you are an entrepreneur with income tax to declare annually, you will normally be sent a provisional assessment for the following year. This ensures that your (expected) tax bill is spread out across the year. But it’s also something you might want to apply for, even if you are employed and your employer deducts income tax and social security payments at the source.

The biggest perk for many people is the mortgage interest tax deduction, or hypotheekrenteafrek. This means that a proportion of the interest you pay on your monthly mortgage can be offset against your income - which can give you a rebate. If this happens on a monthly basis, it can help pay the monthly mortgage (although you’ll still have to file full figures at the end of the year and return any state overpayments).

Optimised to the best interest of you and your tax partner

From this year, the tax office is going to optimise this for tax partners.

Sometimes, a 50:50 split is not the best option for you, because a 70:30 split might bring one tax partner into a lower tax bracket or even offset any tax paid at all. If, for example, one partner earned 80.000 euros a year and the other 50.000 euros and they had a mortgage together costing 15.000 euros in annual interest payments, it would make sense to make sure the higher earning partner took more of that deduction - because this would bring the income into the lower 37.07% tax bracket (under 69.398 euros).

From January, however, the tax office will automatically crunch these numbers for you and apply your mortgage interest tax deduction to the best interest of you and your tax partner.

Check the figures

It is wise to check the figures, however, especially if something changes in your income or employment. For some entrepreneurs, who want to keep as much liquidity as possible in the business and do not owe much tax yet, it might be to their advantage not to have a provisional assessment (although most are sent one automatically).

But for homeowners with a tax partner and a mortgage to pay, this year's tax assessments might bring a ring of slightly better news.

If you need help with your taxes, contact Blue Umbrella via [email protected].