Rules on mortgage interest tightened for Dutch expatriates

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The Dutch Supreme Court has tightened the rules for tax deduction on mortgage interest payments for Dutch tax residents who are temporarily working abroad.

In the Netherlands interest paid on a mortgage for property that is used as principal place of residence is tax deductible.  When a person is temporarily assigned abroad, the interest payments can, under certain conditions, continue to be tax deductible during the non-resident period.  However, should the property be rented out, the interest payments will no longer be tax deductible.

Previously, if a house were to become empty after a period of renting out, it was not clear whether the owner could once again claim the tax back on his mortgage interest payments.  However, following a ruling by the Dutch Supreme Court on 20 February 2015, only the interest paid prior to the period of renting out is tax deductible.

This ruling could have a significant financial impact on Dutch tax residents who are assigned abroad, and will also affect expatriate employees who buy a house in the Netherlands and are temporarily assigned to another country (provided their Dutch house has been their principal place of residence for at least 12 months and all further conditions are met).  Whilst renting out their property may appear to be financially attractive, the benefits will need to be weighed against the possible subsequent loss of tax deductibility on their mortgage interest payments during the assignment period.  ‘Temporary’ is not defined under Dutch law.

Further information

For further information or to discuss any of the issues raised, please contact Rina Driece on +31 10 224 6 424.

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