Social media financial advice how to stop paying Box 3 tax – true or not true
Social media apparently also enables individuals to provide financial advice. Advice how to stop paying Box 3 tax. Interesting or not?
Stop paying Box 3 tax
Ever seen (in Dutch) those short social media talks where a from appearances a smart guy gives financial advice?
It goes like this:
The other day I complained about paying EUR 5.000 Box 3 tax. My friend who is a mortgage advisor stated that I should change my repayment mortgage into a non-repayment mortgage. Then the house debt moves from Box 1 to Box 3. The result is that you pay no more Box 3 tax.
Watching such social media talks makes you feel pretty stupid. Why am I still paying Box 3 tax if it is this simple not to. Or is it?
Stop paying Box 3 tax – convert your mortgage loan
I would like to go through this advice from a logical point of view and the costs involved.
You have now on the house a repayment mortgage. The condition to deduct the mortgage interest from you taxable income, is that you repay the mortgage in a maximum period of 30 years.
The moment you decide to make this a non-repayment mortgage, the mortgage interest no longer qualifies for a tax deduction. That implies the loan moves from Box 1 to Box 3.
Often a bank or insurance company provided you the mortgage. The income aspect for that financial institute is to benefit from you paying interest, under minimal risk. The minimal risk is the collateral, your house, and the monthly repayment of the loan. Will the financial institute voluntarily give up such security? Indeed, not.
Stop paying Box 3 tax – ask the bank to convert your mortgage loan
Living up to the free social media financial advice given, you contact the mortgage bank to make the loan a non-repayment loan.
The request is denied. Answering no is a bank’s core business, but in this case understandable. You ask the bank to give up one of the securities, the monthly repayment. That the bank will never do.
The bank will advise you to apply for a new mortgage loan. A non-repayment mortgage loan. A new mortgage loan implies you have to go through the application procedure again. You need to pay for the costs again.
You need for that a valuation report, costs about EUR 400. The notary needs to make a deed, costs about EUR 1.000 and the mortgage advisor charges between 1-2% fee of the loan amount.
The non-repayment loan is no longer tax deductible, hence the costs you make now are not tax deductible.
Spoiler alert, no financial institute will provide you more than 50% of loan to a non-repayment loan.
Stop paying Box 3 tax – the math
The apparently smart guy in the social media financial advice story stated he paid EUR 5.000 box 3 tax. We have no access to his tax return, hence we assume 20% cash and 80% investments and single. Roughly EUR 330.000 assets minus EUR 57.000 tax free amount is EUR 273.000.
Debts in Box 3 are taken into account for less value, hence EUR 275.000 in this case is required to stop paying Box 3 tax for EUR 5.000. As you now know due to the spoiler alert that you can only convert max 50% of loan to a non-repayment mortgage, you need to have at least EUR 550.000 loan on the house to make this possible.
Stop paying Box 3 tax – Interest rate
In the event you were lucky enough to engage a mortgage at the lower rates we had a few years ago, you pay 1% or 2% interest over your mortgage loan. This now ends with the new mortgage.
The moment you take this social media financial advice to heart, you need to engage a new mortgage loan. Current rates are about 4,5% (please check for exact percentages with your mortgage expert). In other words to stop paying Box 3 tax you are willing to pay twice, three times or even four times the interest costs you paid before.
Moreover, now you repay your mortgage every month for a proportion. Over that proportion you stop paying mortgage interest. The moment you change to 50% of the loan being a non-repayment mortgage, you no longer repay. In other words, where the interest costs would go down, they do not go down anymore. This increased cost of interest you need to take into consideration versus no longer paying Box 3 tax.
Debt at expiration date of mortgage
You made the calculations. The set up costs for this new partly non repayment loan in combination with no more Box 3 tax is best for you. Hence you execute this social media financial advice.
One day you receive a letter from the mortgage bank that the agreement has come to an end. Please pay the non-repayment mortgage loan in 14 days’ time to the bank.
Important to know is that arranging a mortgage in 14 days’ time is impossible, so you have an issue if you did not see this message coming.
Moreover, the moment you turn 57 years old plus a few months, no more mortgage is issued to you, unless you provide a solid pension income stream. If you cannot, no more mortgage.
The thing I try to get across is that with a partly non repayment loan, you partly do not repay the mortgage loan. At the end of the line, you are still with a loan that is not repaid. And if you cannot pay for that, the bank will sell your house on auction. An auction is never good for you.
Change of rules for Box 3
Probably you are aware of the fact that the High Court ruled our Box 3 tax legislation as illegal. The likelihood is in this mechanism that the base is eroded of your assets. That is the illegal part.
Base on the social media financial advice you have made all the conversions. Paid for the set up costs. Accept a higher interest to be paid and then the rules are suddenly changed.
However, if tomorrow the new rules are announced, which are maybe significantly different from those on basis of which you changed the mortgage, you have issues. Your new set up might no longer be effective.
In other words, a random social media financial advice is maybe not for you. If you are open for financial advice, reach out to a person that is actually authorized to provide financial advice. And then the financial advice that is good for you. Tailormade.
Tax is exciting
We think tax is exciting. We are tax advisors, no financial advisors. Why bother to address this topic of random free social media advice? We are processing the aftermath, we are subject to your disbelief how your financial situation has become so bad.
The Dutch AFM institute is very clear on providing financial advice. You need to be authorized by the AFM to provide such advice. Social media advice can never meet these criteria. Be careful what you do if it concerns your finances. Ask your financial advisor their opinion about this free social media advice before you do anything.
