NETHERLANDS: An Introduction to Wealth Managers

The fiscal landscape for high net worth (HNW) individuals in the Netherlands is set to change significantly. Providence Capital is a multi-family office that manages wealth for its diverse clients, who face a range of challenges, including economic uncertainties, regulatory changes and the transfer of wealth to the next generation. This article will focus primarily on recent fiscal changes in the Netherlands.

This overview will guide the reader through critical updates regarding “Box 3 taxation”, the adaptation to shifts in gift and inheritance taxes, and the broader impact of societal polarisation on wealth management. Each section provides essential insights, to help navigate the evolving tax environment in the Netherlands and societal expectations, ensuring preparedness for the opportunities and challenges ahead.

Upcoming Changes to Taxation 

In a nutshell, the Dutch tax system categorises income into three boxes:

• Box 1 taxes income from labour and housing at progressive rates up to 49.5%;

• Box 2 taxes substantial shareholdings at a flat rate of 26.9%; and

• Box 3 applies a tax on savings and investments based on a deemed return. 

In the Netherlands, the taxation of HNW individuals is poised for significant changes, particularly with respect to Box 3, which taxes income from savings and investments. Historically, Box 3 operated on a system of deemed returns, taxing a fixed percentage of 5.69% as the return on investments at a rate of 30%, translating effectively to a maximum net wealth tax of 1.7%. This approach did not tax actual income or gains but presumed a uniform return across all assets.

Shift Towards Taxing Actual Gains 

As of 2024, the Dutch government is considering a shift from this model to one based on actual returns. This change is driven by a recognition that the fixed return assumption does not accurately reflect the financial reality for many investors, particularly in a fluctuating market. The new system proposes taxing actual gains, which could lead to higher tax liabilities for individuals whose returns exceed the previously assumed rate. This move aims to align tax liabilities more closely with actual economic benefits derived from investments, thereby increasing the fairness of the tax system.

The implications of these changes are profound. Tax obligations will likely increase for investors who consistently achieve high returns, potentially leading to a re-evaluation of investment strategies and asset allocations. This could encourage a shift towards more conservative investments or those with tax-efficient structures. Specifically, people are moving low-yield assets from Box 3 to Box 2, and the Excessive Borrowing Act has come into play – this broadly stipulates that a director-major shareholder (DGA) who has borrowed excessively from their own private limited company (BV) must pay tax on this amount. In 2024, a threshold of EUR500,000 is in place, while in 2023 this threshold was EUR700,000 – this has also caused many assets to shift to Box 2.

Revisions Regarding Gift and Inheritance Tax

Another crucial area of reform is the Netherlands’ gift and inheritance tax, which also underwent adjustments in 2023. The tax rates are progressive, depending not only on the amount but also on the relationship between the donor/deceased and the beneficiary. While partners and children face a tax rate of 10% for inheritances up to EUR138,641 (rising to 20% beyond this threshold), rates for other beneficiaries are significantly higher, reaching up to 40%.

2024 sees the continuation of these progressive rates, with an emphasis on maintaining fairness while also providing avenues for tax relief through various exemptions. For instance, substantial reliefs are available for business succession, where assets passed on to the next generation can benefit from reduced tax rates or exemptions, provided specific conditions are met, such as the continuation of the business for a designated period.

The strategic use of these exemptions is vital for estate planning, ensuring that family businesses can transition smoothly without a disproportionate tax burden disrupting operations or forcing a sale of the business.

Societal and Economic Polarisation 

Beyond legislative changes, HNW individuals in the Netherlands face broader societal challenges linked to growing economic and social polarisation. This demographic often finds itself at the centre of debates concerning wealth inequality and tax fairness. The public discourse increasingly questions the role of wealth in society, with calls for more rigorous regulations and a fairer redistribution of resources.

This polarisation is not just a social issue but also a regulatory concern, as it influences tax policy and public perception. The pressure for transparency and fairness in taxation is mounting, prompting the government to consider more stringent measures to ensure that wealth contributes its fair share to societal development.

The ongoing debate around these topics is likely to shape further legislative changes, affecting everything from tax rates to the structure of tax incentives and exemptions. HNW individuals must stay informed and engaged with these developments to navigate the evolving landscape effectively. We are concerned that, due to polarisation, the government is overreaching in its pursuit of equalisation – seeming to solve one problem but creating a bigger one.

Conclusion 

The landscape for HNW individuals in the Netherlands is characterised by a delicate balance between ensuring tax fairness and maintaining an environment conducive to investment and wealth generation. Changes in Box 3 taxation and in gift and inheritance taxes reflect a broader trend towards greater alignment of tax obligations with economic realities and societal expectations.

HNW individuals must adapt to these changes through proactive financial planning and a keen understanding of the socio-economic factors at play. As the debate continues on the role of wealth in society, staying ahead of regulatory changes and public sentiment will be crucial for those looking to safeguard their assets and their legacy.