When your business is doing well, you may begin to build up wealth. The tax authorities distinguish several types of income. For the tax authorities property income is covered by box 3. So which types of assets are included in box 3 and what are the tax rules?
Firstly, it is good to know that income tax consists of three boxes. In box 1 you state income from work and house. In box 2 you state income from a nv or bv if you have a substantial interest (when you have at least 5 percent of the shares). And finally, in box 3 you state income from savings and investments.
Box 3
So the income from box 3 comes from savings and investments. This is what you call your assets. Your assets are the total of your money in your private bank accounts, investments and other assets, minus debts.
These include:
- Private bank and savings accounts
- Investment accounts
- Cryptos
- Cash
- A claim on someone
- A second home (the related mortgage is a debt that may also be included in box 3)
- Other debts such as student debt or a credit card
- Bank and savings accounts of your children if they are under 18 years old
Not included in this list is the business bank account. Your business bank account doesn’t belong to your private assets, but is regarded as an asset of your company. This also applies to a private bank account that you use only for business purposes. The amount in this account will not be included in assets for box 3. Please note that the amount in this account must have a business purpose. So you can’t just transfer your entire savings to your business account in order to avoid paying tax.
Exempt equity
A fixed amount of your assets is exempt from tax. We call this exempt equity (heffingsvrij vermogen). The amount of the exempt equity is annually set by the tax authorities. For 2024, the tax-free allowance is €57,000 for individuals and €114,000 for tax partners. The Tax and Customs Administration always uses 1 January of the year as the reference date. In other words, if your assets are higher than €57,000 on January 1, 2024, you must state this in your 2024 tax return.
If you exceed this limit, you will have to pay wealth tax. The Tax and Customs Administration assumes that you have a certain benefit or return from your capital. So you have earned income from it and you have to pay tax on it. If your capital grows, the return is higher and obviously you also pay more tax.
Fictitious return
You therefore do not pay tax on your total assets, but only on the benefit of your assets. When calculating the wealth tax, the Tax and Customs Administration calculates an assumed benefit or a so-called fictitious return. So it’s not calculated by looking at what you have actually received in interest on your savings account.
The Tax and Customs Administration calculates this fictitious return on the basis of your total assets and a predetermined percentage. This percentage is calculated over the amount of assets that remains after you have deducted the amount of exempt equity. Based on that the actual wealth tax is calculated.
The most important thing is to keep that €57,000 in tax-free capital in mind. If you stay below that on 1 January of the year, there is nothing to worry about and you do not have to pay tax. Are you going over it? Consult with your accountant about which documents you need to find out what your total assets are on 1 January. Then this can be included in the income tax returns for that year.
