Dutch tax partnerships explained for income, gift and inheritance tax

Income tax in the Netherlands

The Dutch income tax system for individuals is split into boxes. There are three types of boxes:

• Box 1: Taxable income from work (freelance, employment and other activities) and main residency.
• Box 2: Taxable income from a substantial interest (5% or more shares in a B.V. or equivalent company).
• Box 3: Taxable income from savings, investments (including real estate), and debts which don’t belong to box 1 or 2.

As a Dutch resident, you must fulfil Dutch tax obligations, which means you are obligated to declare your worldwide income in your Dutch personal tax return.

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Requirements of tax partners for income tax 

If you are not considered tax partners, you should file a separate tax return. If you are considered tax partners, then you can file a joint tax return. 

You are considered tax partners if the following conditions apply:

• Marriage.
• Registered partnership at the municipality.

When you fulfil one of the above conditions, you will still be considered tax partners even if you do not live together.    

You are also considered tax partners by law if you are living with your partner and are registered at the same address. Also, if you:

• Have a notarial cohabitation agreement.
• Live together in a jointly owned property.
• You have a child together, or you have formally acknowledged your partner's child.
• You have a minor child of one of the partners registered at the same address.
• If you are mentioned in your partner's (employer) pension scheme.
• If you were tax partners in the previous year.

Each one of these conditions can be indicated on your personal tax return. Being considered a fiscal partner does not have the same impact as a marriage or cohabitation agreement. In this situation, a tax partnership is for tax purposes only. 

Tax partnerships in the Netherlands

As tax partners, you can allocate certain items in your personal income tax return between you and your tax partner. The main advantage of allocation is that deductions can be applied to the partner with the higher refund, or to the partner where it results in lower taxes.

It is also possible to allocate taxable income between partners for Boxes 2 and 3. By doing so, tax partners can also make optimal use of general tax credits if one partner has a lower income.  

Tax benefits through allocating deductions

An advantage is that you may allocate deductions to the partner who gets the most benefit.

The following deductions can be allocated to each other in Box 1:

1. Paid mortgage interest.
2. Donations to certain registered charity funds.
3. Certain medical expenses which are not covered by healthcare insurance.
4. Paid partner alimony.

The following deductions cannot be allocated to your tax partner:

1. Paid premiums for an additional private pension (annuity).
2. Premiums paid for disability insurance (applicable for entrepreneurs).
3. Travel expenses to work (if more than 10 kilometres) made with public transport and not fully covered by the employer.

Double tax-free allowance on Box 3 assets

As fiscal partners, you can combine your savings and investments. The tax-free allowance on assets then applies jointly to both of you.    

Gift & inheritance tax for tax partners

Tax partnerships for gift and inheritance tax work differently. You are tax partners for gift and inheritance tax purposes if you are married or if you have entered a registered partnership. The tax partnership also applies if you live separately while married or in a registered partnership.

Inheritance tax 

For inheritance tax, you are still considered tax partners even if you are not married or in a registered partnership, when you, prior to the death, meet the following conditions for at least six months:

• You have a notarised cohabitation agreement with your partner.
• You are both registered at the same address.

Provided that:

• You and that person are not blood relatives in the direct line. Blood relatives in the direct line include, for example, a father and his daughter or a grandmother and her grandson.
• There is no other person who qualifies as your partner for inheritance tax purposes.

Gift tax 

When you are not married or in a registered partnership, you are considered tax partners for the gift tax if you and your partner:

• Have a notarised cohabitation agreement.
• Are both registered at the same address for at least two years.
• Are not blood relatives in the direct line. Blood relatives in the direct line include, for example, a father and his daughter or a grandmother and her grandson.
• There is no other person who qualifies as your partner for inheritance tax purposes.

Cohabitants without notarised cohabitation agreements

However, if you meet all the conditions for cohabitants but do not have a notarised cohabitation agreement, you are still considered tax partners for the gift and inheritance tax purposes if you have both been registered at the same address for at least five years.

Being in a tax partnership means that you can benefit from gift and inheritance tax exemptions as well as lower gift and inheritance tax rates that apply to tax partners.