News feature | 15-04-2022 | 12:00
The government plans to start collecting tax on the actual return in box 3 from 2025. A letter about what the new system will look like has been sent to the Folketing today. With a so-called capital gains tax, an annual tax will be levied on the actual return on capital.
The government has also sent the Folketing a letter with options for how to offer access to appeal to persons who have paid wealth tax in box 3 for the years 2017 to 2022. This was in response to a decision by the Supreme Court at the end of last year. The proposal is to offer people rights based on a new calculation that approximates the actual return as closely as possible. Two variants have been developed for this. Temporary legislation is being drafted in the same direction for the interim years 2023 and 2024.
Minister of Finance Van Rij: “Ridom has been taxed the wrong way for years. People with savings therefore paid too much tax, while property owners paid too little due to the sharp house price increases. Therefore, a new system will be introduced from 2025, where we will have to collect tax on the return that people have actually achieved. Of course, we will also rectify the past, although there is no ideal solution to this. In addition to advantages, all options that have been explored also have disadvantages. This means that we will have to make difficult choices in the near future. ”
The government wants to give people clarity as soon as possible on what they can expect from the recovery. At the same time, the government believes that it is important to discuss with the House of Representatives next week. There is no single simple solution, and each choice has different budgetary and implementation implications.
Depending on the choice of target group and variant, the recovery will cost between € 2.4 billion and € 11.7 billion. The final decision-making will only take place after the debate during the spring decision-making process around the beginning of May. Therefore, a decision is made on the budget coverage. On the basis of this planning, Tax may commence recovery around July 1, so that all massive objections can in any case be settled before August 4th.
About 60,000 people have objected to the tax in box 3 for the tax years 2017-2020. The government has not yet decided whether only this group should receive compensation or whether the group should be expanded. Furthermore, all persons for whom the tax assessment has not yet been determined are entitled to the restoration of rights.
Previously (2017 to 2022)
In assessing the possibilities for restoring rights, the government must weigh the possibilities between compliance with the Supreme Court’s ruling, feasibility and budgetary consequences. The government therefore proposes to offer people automatic restoration of rights based on a new calculation. The calculation is based on the actual distribution of savings and investments with a taxpayer. This is a big difference from the current situation, where it is assumed that the capital from which tax is paid consists to a certain extent of investments, even if this is not the case, and the capital consists exclusively of savings. Two recovery options have been developed.
In the first variant, people with savings will be taxed on the basis of the current savings interest rate, which has been 0% in recent years. For debt, the mortgage rate is linked and for investments (securities, real estate) the multi-year average return on investment is assumed – just like now. For example, it does not compensate investors for bad results in a specific year, as they are not taxed extra for good results in another year. A taxpayer with € 200,000 in wealth in 2020, of which three quarters (€ 150,000) is savings and the rest is investments, will receive € 916 back in this variant. The same taxpayer with € 200,000 in wealth and only a quarter of the savings (€ 50,000) gets no money back in this variant because in this calculation he should actually have paid more tax than he paid.
In the second variant, the lump sums are adjusted to the average return for these asset classes in a year, so that this corresponds as closely as possible to the actual return in that year. That way, the actual return comes as close as possible.
Restoring rights based on one of these variants removes a major pain point in the old Box 3 system. This is therefore a fair form of improvement. It is possible that people are still starting procedures because the calculation in a single case does not quite match the actual return. Therefore, two variants of how to handle possible new procedures have been presented.
Current (2023 and 2024): emergency legislation
There is a need for urgent legislation to be able to collect tax correctly in box 3 again in 2023 and 2024. The government proposes that this emergency legislation be adapted to the possible design of restoration of rights. It is still being investigated whether it is possible to introduce a wealth tax from 2023, but it was technically not possible. A temporary wealth tax does not make sense if the actual return from 2025 is to be taxed on the basis of capital growth.
Future (2025 and onwards)
The government’s goal is to get a new Box 3 system based on actual returns from 2025. What this new system could look like has also been sent to the hall. The government proposes to design the new Box 3 system as a capital gains tax, imposing an annual tax on ordinary income (such as interest, dividends, rent and leasing less costs) and the development in the value of the assets (such as capital gains). or losses on shares and property value increases or amortization).
For example, the value development of a share portfolio is taxed from year to year and not only in the year in which part of the shares is sold. In this way, long-term deferral of taxation is avoided.