With low interest rates on savings accounts, many are looking for a way to get more return on their savings. Investing in a vacation home is a smart move that combines the useful with the pleasant. It is important not to lose sight of a number of tax considerations.
Article written by the Second Home Exchange.
Holiday home on your tax return form
If you do not reside permanently in your second home, it belongs to the "box 3" assets on your tax return form. That is, the actual income and expenses related to the vacation home are irrelevant to your tax return. The amount on which you are taxed is a notional return on the WOZ value of the home. This varies between 2.871% and 5.39% in 2017. The amount is reduced by any debt on it.
Second home abroad
Have a vacation home abroad? Then you can usually use the 'deduction taxed elsewhere' rule in the Netherlands. This way you avoid being taxed twice. Taxation is usually done in the country where the house is located. It is important that you inform yourself about this well in advance.
VAT on income from vacation home
If you are the owner of one vacation home and rent it out, you are not an entrepreneur for income tax purposes. In terms of VAT it is different: you pay 6% VAT on the rental income. On the other hand, you may also reclaim VAT on expenses you incurred and things you purchased. Usually this leads to a refund. If you use your vacation home partly yourself and rent out the rest, the VAT is calculated proportionally. For example, if you live in the house one month a year, then 11/12 of the VAT is deductible. If you want to get around this, you can run all the rentals with an intermediary. But then you also have to pay rent yourself during the period when you move into the house, which may not be as interesting.
Concrete example vacation rental
- You invest 150,000 € in a finished, furnished vacation home with your own funds.
- Total cost: €7,500 (including municipal taxes, insurance, depreciation)
- 25 weeks rental/year
- Rent averages 600 € per week
- Annual revenue: 15,000 €
- What you are left with: 7,500 €, or 5% of your investment of 150,000 €
Even after 'box 3' taxation, you'll still have a nice amount left over!
Investing in a vacation home is thus a smart way to get more return on your savings. Plus, you can vacation cheaply yourself, which is obviously a nice bonus!
Source: secondhome.co.uk