While I’m personally also not thrilled about such taxation, it does not automatically signify the end of a country. I personally think that the combination of high taxes, including unrealized capital gains tax, and high governmental trust and many free services can also be a working country model. I see Denmark as a prime example for this. Having a happy population, low corruption and livable cities seems to make the package as a whole attractive.
In other words, if you tax on unrealized capital gains, you also have to offer something in return. Not sure what the Dutch offer is.
The problem: taxation is based on wealth as at 1st January (if I correctly understand)
The solution: sell all your assets on 31 December and buy them back on 2 January. No tax on unrealised gains.
Taxation: no tax on unrealised gains (the question of whether there is tax on realised gains is quite another matter; I am not aware of this being the case in the Netherlands).
Practical question:
If they tax unrealised gains (the new unrealised gains every year I guess?), what happens if the asset value declines?
Example:
I buy stocks for 100 €
First year they have gone up 100€ to 200€ → 36 € tax
Second year they go up 200 € to 400 € → 72€ tax
Third year - 75%, - 300€ , back down to 100 € → ?
We’d need to dive into the the details of Dutch taxation, it’s not clear to me it’s worse for investors than their current system (where before it was struck down by courts, you could be taxed on more than your actual gains, even with losses). It’s a flat rate rather than progressive so if you get market return (5-6%) you end with the same overall tax in the old and new system (tho old system was smoothed).
If you do beat the market then yeah you’ll be taxed more (but maybe those beating the market are also more likely to have large losses and revert to the mean long term)
In all fairness, I never liked the old system either. It was one thing when the assumed gains were ridiculously underestimated, but a ~2% tax is kinda killing for FIRE purposes if a SWR is 3-4%.
a realized CGT is just advantageous for FIRE as the worst “sequence of returns” likely mean you have no/little gains (maybe except for runaway inflation), and hence you pay little tax in the worst case and you pay a lot of tax in the good case. A more constant wealth tax (and Switzerland absolutely suffers this, it is just less of a problem due to the tax being lower) doesn’t have this effect as much (of course you pay tax on a lower base if the market is down, but you still pay a bunch).
Now my problem with the unrealized CGT:
The level is relatively high, among the highest in Europe I believe (e.g. Germany, France, Poland, UK are lower)
It punishes the volatility we see by going mostly into stocks.
You can’t defer the taxes, though the net effect of this is lower than most people assume (IIRC I ran tests on the S&P 500 with a deferred and non-deferred 20% tax, and IIRC the difference was only 0.1-0.2 percentage points in returns. Maybe a bigger effect with the higher taxes)
Additionally in the recent elections, a bunch of parties proposed a wealth tax on top of this, as well as an increase of the capital gains tax rate. Like D66 (one of the now government parties), wanted to increase the CGT rate to 40% and introduce a 1% wealth tax on wealth above 1 million euro, making it hard to beat inflation after tax (e.g. assuming 3% inflation you’d need a nominal return of 6.6% pre-tax) That said, election programmes and actual execution are different things, so who knows what will happen.
Note that e.g. real estate is excluded from the new rules, but since a year or two there’s been an increased scope for rent controls, so I’m not sure how much of an escape hatch it would be (and in Switzerland I’ve been on the REIT train due to it being completely hands off).
But I’m increasingly pessimistic about moving back to the Netherlands if/when FIREing, as the increase in tax will likely more than offset the lower cost of living. There are a couple of cheaper options in Europe that seem reasonable like Germany (I already learned German in Switzerland) or the UK, but both have recently also discussed increasing or actually increased tax rates. Like in Germany there was something about paying social contributions on capital gains, and the UK has increased both dividend and capital gains tax rates with the current Labour government. And with the high deficits in most European countries and lots of anti-rich people rhetoric, I suspect this won’t be the last tax increase seen here.
So this highlights every country has some regulatory risk and while the Netherlands looks particularly bad right now, it is no guarantee other countries will be better. So
I don’t know, I think I’m the only one on the “make enough to FIRE” track in the family and
I feel there are bigger issues in the Netherlands (like housing crisis)
A bunch of the elected parties actually wanted a realized gains tax, but for whatever reason this was considered more difficult to implement and the tax service has been a continuous disaster as not being able to keep up with the changing tax code. So since the legal system decided that the current system was illegal, I can see why they went for the quick instead of the wanted solution.
Now of course since the problem is “fixed” I strongly suspect the pressure is gone to tweak the system more, so I doubt the realized CGT will come anytime soon.
Note that with >5% ownership in a company you get a different realized CGT system already, so this mainly impacts “somewhat rich” folks putting things in public stock market funds rather than big company owners. So us FIREing folks are probably the hardest hit group actually.
I think the issue with standard capital gain taxes was that you would have a transition period where there would be almost no tax revenue (too few sellers during the first years).
Talking about nasty tax surprises: This reminded me the UK didn’t have CGT till the Beatles circumvented the at the time 95% top income tax rate in the 1960s.
The treatment of ETFs by Ireland, the de facto home of the European ETF, is much much worse, to the point that no Irish residents buy UCITS ETFs.
With a clear head, I am not sure where this type of conversation fits in this forum. Given these are not Swiss taxes we’re talking about they don’t impact any Swiss tax resident. Perhaps it’d fit better along “country to FIRE” type conversations.
That said, this type of discussing the news and policy is very interesting to me, both in terms of education, staying up to date, but also discussing through the what/why/how and hearing other members’ opinions. The sting in the left tail of this type of discussion is that it does get heavily into politics - not policy - which means the question is “what does this forum want to be?”. If it wants to be a strict Swiss FIRE forum then…it’d be useful as a resource but boring as a forum (sorry, not sorry!). If it wants to be a broader forum for discussing economics, finance, investing philosophies/methodologies/news as mature educated adults then that’s a ton more interesting to me - which is of course meaningful only at the individual member level.
Interesting for me also even though I have no exposure to NL taxation.
The fact is that countries around the world are looking for additional revenue and so these changes are useful to understand what is being tried, how it might work and gives a heads-up for what might also appear in other countries (which could impact you).
Except in that case does it even increase tax revenue? It’s not obvious to me (and it definitely wasn’t the goal, the goal was to fix something which wasn’t compliant to European rules).
I’m not sure in this specific case, but I remember some other countries discussing taxing unrealised gains. The tricky part is implications e.g. liquidity issues, also what if next year the gains decrease or become a loss, do you refund?
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and revert to the mean long term)