Can you still build wealth in the Netherlands?
- 5 days ago
- 5 min read
I have a confession to make: I am really angry lately.
Why?
Because I’m coming to the realization that the more I progress on my financial journey, the more I get penalized by the Dutch Government.
Through all sorts of creative ways, but especially through the infamous ‘Box 3’ wealth tax.
Whether you’re very familiar with Box 3 or have never heard of it, read on. In this article I’m sharing:
How growing wealth in the Netherlands is becoming increasingly more difficult
How it’s particularly crushing for someone striving to achieve financial independence, and
What we can do about it
What is Box 3 and why do we need to talk about it?
Simply put, is it the portion of your money that the Dutch Government levies a wealth tax on, specifically on your investments, savings and rental properties (their WOZ value). Above a threshold of around 59k for individuals and 118k for couples.
To illustrate the impact, let’s take the example of Jane, a woman who has done everything right, learned about investing and diligently built an emergency fund. She has 50k invested in a stock portfolio and 20k in savings. She’s above the threshold of 59k, and so these assets in Box 3 would translate to a total tax of about 216 euro (I’ll spare you the confusing details of the calculation formula behind it, and leave it to AI to explain it to you).
216 on 70k doesn’t sound like too big of a deal, right?
Now let’s imagine what happens if Jane continues on her wealth journey, gaining more knowledge, buying more assets, investing for her financial independence. She might get to 200k invested in a stock portfolio, alongside her 20k in savings. That would mean a Box 3 tax liability of around 3,000!
Starts to sting, huh?
And what if she also buys an apartment to rent out so that she has a second stream of income? She takes out a mortgage of 550k, buys a place worth 600k (WOZ), and rents it out for 1000/month. Next to her 200k investment portfolio and 20k savings, she now owes about 10,000 to the taxman! Which practically wipes out her entire rental income for a year...
Do you see the pattern?
The harder you work and the more financially savvy you become, the more you get punished for it by the Dutch Tax Office.
Are you now also angry? Good.
But isn’t this how it should be? That rich people pay more in taxes?
Without going too much into ethics or morality, people who earn more in the Netherlands generally DO pay more in taxes ALREADY. It’s happening via Box 1, which is income tax.
There’s a progressive income tax system here, and once you pass the threshold of about 76k gross income/year, the Dutch Tax Office taxes practically half of that.
Considering this, how is it fair that even after giving away 40-50% of our income, we STILL have to pay progressive taxes on the savings and investments we accumulate with money that has already been taxed once before?
How should it be?
In a fairer system, we’d be taxed on capital gains. Meaning only once we sell an asset (stocks, bonds, a rental property, gold, bitcoin etc.) and actually made a gain on it do we get taxed.
That’s how it works in Germany, France and Belgium, for example.
But that’s NOT how it is today in the Netherlands.
The way it works today is that we get taxed on our assets just for holding them, regardless of whether we sold them or not, at a gain or a loss. How? Well, the Dutch Government assumes a 6% return on your investments (regardless of your actual return) and just taxes you based on this unrealized assumed gain.
Will it change?
In 2024 the Dutch Supreme Court ruled that the wealth tax (Box 3) needs to change. Ever since, lawmakers have been working on a proposal to change it, and earlier this year they passed the change to tax actual income from assets (dividends, interest and rental income) AND unrealized gains ... making it even worse!
As was to be expected, there has been a lot of protest and public criticism against this... even Elon Musk had to comment on how ridiculous it is.
Now we’re back to square one, again unclear of what kind of change will come in 2028.
What can we do?
The way I see it, there’s two levels of thinking here.
The first is tactical: how to avoid Box 3 wealth tax next year? It’s short-term and reactive in nature.
And the best way I know is through ‘lijfrente’ which is investing through a private pension account that gives a double benefit: it’s tax-exempt in Box 3, and lowers your taxable income in Box 1.
The catch is of course that these investments are tied till official retirement age. You can withdraw them before that, but at a penalty. Still, a pretty good option and one I am using myself every year.
Also, in case your investment portfolio returned less than 6% (the assumed return rate), there’s the option to provide that as evidence to the Tax Authority and have then calculate Box 3 for you based on your actual return. As you can imagine, it’s a bureaucratic nightmare and perhaps worth hiring a tax advisor to help with this.
And the bigger picture?
The second level of thinking is more elevated, strategic, and longer-term: can I still build wealth optimally in the Netherlands?
Taking Carlos (my partner) and I as an example, we’ve been investing for over a decade so that we could reach early Financial Independence (FI). Meaning being able at some point before traditional retirement to withdraw from our investment portfolios for passive income.
But with Box 3 in the way, our returns are reduced, which significantly pushes out our timeline to FI by several years.
Same with the example of real estate investors who want to have steady cash flow: with rental properties being heavily taxed in Box 3 and the points system (huurpunten) forcing a lot of rental properties into social housing classification, it stops making sense to buy property in the Netherlands as an investment.
This is why it’s important to zoom out and look at the bigger picture of our money and the kind of life we’re trying to design with it.
Evaluating options may very well show that it’s worth the financial trade-off in order to grow roots in the Netherlands; it is a country that has a lot of positives after all.
But it’s important to start this work sooner rather than later, methodically and well-informed, so that you can have more peace of mind around the life choices you’re making, financially and beyond.
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