Cuts to mortgage tax relief in the Netherlands on the table again

The mortgage interest deduction has once again become a topic of debate for the Dutch cabinet. A motion to reverse the increase for the mortgage tax relief received a majority, causing a rift between the coalition parties.

Spotlight on Dutch mortgage interest deduction

PRO (formerly known as GroenLinks-PvdA) submitted a motion earlier this week to reverse an expansion of the mortgage interest deduction. Two of the coalition parties, D66 and CDA, voted in favour of the motion, which led to a majority, reports NOS. The remaining coalition party, VVD, was opposed.

Mortgage interest deductions allow homeowners to deduct mortgage interest payments from their taxable income for up to 30 years. An OECD study found that the Netherlands offers the highest tax relief for homeowners in Europe, which drives up housing prices and widens wealth inequality. The organisation recommended phasing out the tax incentive.

D66 and CDA both want to phase out the mortgage tax relief, while VVD is adamant that it stay in place. After much back and forth, the parties agreed to leave the mortgage interest deduction as is in the coalition agreement. 

However, an increase in income tax rates means that the mortgage tax relief automatically rises as well, benefiting homeowners with high incomes. This is the expansion that PRO is moving to reverse.

Problems with mortgage tax relief 

There is another problem with the mortgage interest deduction that could stir up trouble for the cabinet. Since 2001, homeowners have been able to take advantage of the tax incentive for a maximum of 30 years, which means that by 2031, the benefit should come to an end.

The catch is that for these homeowners, it is nigh impossible to keep track of everything that has happened in the decades since they first started with the interest deduction, whether it be moving, getting a divorce or receiving extra financing for renovations. And many residents most likely haven’t kept records that far back.

Tax authorities, banks and mortgage advisors also don’t have records this far back due to privacy laws. All this means that some homeowners could continue to deduct mortgage interest from their income tax past 2031.  

It may be a temporary problem that ends in 2043, as a regulation limiting the interest deduction to mortgages that have been fully repaid within 30 years was introduced in 2013, but it could still cost the treasury almost 1 billion euros every year until then. 

Civil servants have been asked to come up with a solution to this problem and the report is set to be released this week. A possible solution could be to phase out the mortgage interest deduction.