Budget Day 2023: measures individuals and director-major shareholders

Traditionally, the tax plans for the coming year are officially announced on Budget Day. This year, the Tax Plan 2024 announced by the outgoing cabinet consists of 15 bills. A number of these concern significant changes/measures for the (wealthy) private individual. Mazars has listed the most important (tax) proposals from the Tax Plan 2024 for the (wealthy) private individual. 

Proposal relating to income tax (Box 1)

Repair in owner-occupied home scheme for moving arrangements for partners with an owner-occupied home history

Based on current legislation, in certain situations it matters whether the old home is sold before or after the new home is bought and occupied. Depending on the order, a difference in taxation may arise if one or both tax partners have an owner-occupied home history. This difference is not intended. The proposed change is therefore introduced retrospectively to 1 January 2022.

Proposals relating to income tax (Box 2)

Conservation assessment - Excessive Borrowing Act

The Excessive Borrowing from Own Company Act came into force on 1 January 2023. In essence, this law means that if a substantial interest holder borrows more than €700,000 (the threshold amount) from his own company, the excess is taxed as a notional regular benefit in Box 2. From 1 January 2024, the box 2 rate will be 24.5% up to a box 2 income of €67,000 and 31% for income above that.

When a substantial interest holder emigrates, a protective tax assessment may be imposed. Deferral of payment may be granted for this protective assessment. If, after emigration date, there is a notional regular benefit from substantial interest - because the threshold amount has been exceeded - then this conservative assessment will be partially recovered to the extent that no levy option is possible under the relevant tax treaty.

Under current legislation, the protective assessment is also recovered if excessive borrowing from a newly acquired substantial interest in a company takes place after emigration date. As a result, income outside the scope of the imposed protective assessment may affect the recovery of the protective assessment.

This consequence was not intended and is repaired by the amendments in the Tax Plan 2024. Namely, it stipulates that recovery of the conservative tax assessment should only take place to the extent of direct or indirect excessive borrowing from companies from which the taxpayer has been granted a deferral of payment for the conservative tax assessment. Also, an increase in debt may not have previously resulted in the cancellation of the deferral of payment.

Abolition of employment requirement for income tax pass-through scheme (DSR)

The employment requirement for the income tax pass-through scheme (DSR) will be abolished based on the Bill 2024 Adaptation of Fiscal Business Succession Allowances Act. Currently, the DSR can only be used in the case of a gift if the transferee was employed by the company for 36 months prior to the time of the acquisition (the employment requirement does not apply in the case of transfer by death). The proposal is to abolish this employment requirement from 2025. 

Proposals relating to income tax (Box 3)

Increase in box 3 rate and non-indexation of tax-free assets

The government wants to increase the current rate in box 3 from 32% to 34% in 2024. In 2025, the rate will remain 34%. The proposal thus differs from the Tax Plan 2023, which proposed increasing the rate by 1% annually to 34% in 2025. Furthermore, it is proposed not to index the tax-free wealth with effect from 1 January 2024. As a result, the tax-free capital will remain €57,000 (€114,000 for tax partners jointly).

Box 3: include shares in the VvE and money in a trust account under bank deposits

The government proposes to treat two additional forms of assets as bank deposits. These are the share in the assets of the Owners' Association (VvE) and assets held in a notary's or bailiff's third-party account. Currently, these assets fall under the category 'other assets'. The adjustment will apply retroactively until 1 January 2023.

Box 3: defiscalise mutual claims and debts of partners and minor children

The government proposes that mutual claims and debts between tax partners and between parents and minor children will no longer be regarded as assets to be taxed in Box 3. These will no longer have to be declared in the tax return. It is proposed that this adjustment be retroactive to 1 January 2023. 

Proposals regarding gift and inheritance tax

Exemption for business succession regime (BOR)

Based on the Bill on Adjustment of Fiscal Business Succession Allowances 2024, the exemption for the business succession regime (BOR) in the gift and inheritance tax will be set at 100% over the goingconcern value of the relevant business up to €1.5 million (currently around €1.2 million) and 70% (currently 83%) over the excess of business assets from 2025 onwards. 

Possible relaxation of the ownership and continuation requirement of the BOR

According to the caretaker government, this measure is complex and requires more time for thorough elaboration, which is why it is included in the Tax Plan 2025 with an envisaged effective date of 1 January 2026.

Counteracting constructions of improper use of BOR

Consideration is being given to how constructions to improper use of the BOR can be countered. Constructive behaviour can take place via so-called 'rollator investments' and via 'double BOR'. With so-called 'rollator investments', wealthy individuals transform their non-corporate assets in such a way that they qualify as corporate assets. This includes extending the possession period for a testator and donor who has reached the state pension age. Furthermore, the caretaker government intends to exclude application of the BOR insofar as a company has previously been owned by the acquirer ('double BOR'). According to the outgoing cabinet, this measure is complex and requires more time for thorough elaboration and is therefore included in the Tax Plan 2025 with an intended effective date of 1 January 2026.

Proposals for both income tax (box 2) and gift and inheritance tax

Abolition of the efficiency margin in the DSR and BOR

The efficiency margin in the DSR and BOR will be abolished on the basis of the Bill on Adjustment of Fiscal Business Succession Allowances 2024. Currently, a franchise for investment assets of 5% of the value of the business assets in the DSR and BOR applies. The proposal is to abolish this franchise so that the DSR and BOR can no longer be used at all for investment assets. For the BOR, abolition by 2025 is the starting point. The efficiency margin for the DSR will be abolished at a later date.

Elective capital within the company

Proposals for both income tax (box 2) and gift and inheritance tax

Abolition of the efficiency margin in the DSR and BOR

The efficiency margin in the DSR and BOR will be abolished on the basis of the Bill on Adjustment of Fiscal Business Succession Allowances 2024. Currently, a franchise for investment assets of 5% of the value of the business assets in the DSR and BOR applies. The proposal is to abolish this franchise so that the DSR and BOR can no longer be used at all for investment assets. For the BOR, abolition by 2025 is the starting point. The efficiency margin for the DSR will be abolished at a later date.

Elective capital within the company

Restriction of access to DSR and BOR to regular shares

Access to the DSR and BOR will be limited to regular shares that participate fully in the profit entitlement and liquidation proceeds with an interest of at least 5%. The current dilution regime and exceptions for preference shares in the context of phased business succession will continue to apply. According to the caretaker government, this measure is complex and requires more time for thorough elaboration and is therefore included in the Tax Plan 2025 with an intended entry into force date of 1 January 2026.

Minimum age for business successor(s) 

Based on the Bill on Adjustment of Business Succession Tax Allowances 2024, in conjunction with abolishing the employment requirement for the DSR, it is proposed to introduce a minimum age of 21 for business successor(s) from 2025. For business succession in case of death, the caretaker government does not propose an age limit. 

Gifts by private limited company

Non-business donations by a private limited company to an ANBI or Steunstichting are deductible under current legislation for corporate income tax up to 50% of the profit, with a maximum of €100,000. If the threshold amount is exceeded, the donations are not deductible for corporate tax and are considered a disguised distribution to private persons. This is then regarded as a donation from private individuals by the substantial interest holder to the respective ANBI or Foundation. The substantial interest holder owes income tax on this distribution. However, the substantial interest holder can use the gift deduction in the income tax.

It is proposed that from 1 January 2024, a gift from the company - to an ANBI or Support Foundation - will no longer be deductible for corporate income tax. As a result, from now on there will also no longer be a hidden distribution to private individuals. As a result, donations by the company will no longer be considered a taxable benefit for income tax or proceeds for dividend tax.

This measure leads to simplifying the possibilities to donate from the company to an ANBI or Support Foundation. By doing so, the government continues to encourage companies to make large donations from the company.

Business expenses by companies to charities, such as sponsorship or advertising, will continue to be deductible.

Reduction in SME profit exemption

The SME profit exemption is a deduction from taxable profits. The exemption is a percentage of the profit earned from one or more enterprises. The government proposes to reduce the percentage of the exemption from 14% to 12.7%.

Building depreciation limitation in income tax

Depreciation on a building is possible only if the book value exceeds the building's floor value. In income tax, the floor value for buildings in own use is 50% of the WOZ value. From 2019, for corporate income taxpayers with a building in own use, the WOZ value will apply as the floor value. In the included amendment, the difference is removed and buildings in own use in income tax will also be subject to the WOZ value as the floor value. For all buildings used as business assets, depreciation will apply up to a maximum of the WOZ value. 

Like to know more about Tax Plan 2024?

Would you like to know more about the proposed changes and what this means for you? If so, please contact Sanne Jansen-Verbakel by e-mail or by phone: +31 (0)88 277 12 08 or Martin Aandewiel by e-mail or by phone: +31 (0)88 277 13 96. They will be happy to help you further.