Tuesday 09 August 2022

The three types of donations and when you can deduct them from tax

It is always good to give – and in the Netherlands, there can be a tax advantage
too.

If you donate more than 1% of your taxable income in any given year to certain
good causes, you can deduct this sum from your income before you pay tax on
the rest.

Sing in a church choir at the weekend, and send them an annual donation? Give
money to your local mosque? Made gifts to the major Ukraine appeal Giro555
or smaller initiatives? If this comes to more than 1% of the joint income of you
and your financial partner, then make a note of it for your accountant.

ANBI

‘Donations are deductions in the Netherlands from your income tax filing, but it
has to be to an organisation with a recognised charitable status,’ says a
spokesman for expat accountancy Blue Umbrella. ‘There is a register and you
can see all of the organisations and their ANBI number. If the organisation is
there, you can deduct your gift from income tax.’

If there’s a charity that you support longer-term, there are tax advantages to you
for giving a monthly gift. If you pay by regular standing order, for at least five
years, the Dutch tax office boosts your donation by 25% in terms of your own
deductions. ‘This means if you pay €120 every year, you can deduct €150,’ he
adds. ‘You have to be able to prove that you did this nowadays, so this cannot
be a gift in cash.’

If you had income of €50,000 a year, you would need to give at least €500 in
individual gifts to qualify, and the maximum that you could deduct would be
€5,000. However, if you are contracted to give routine payments, there is no
maximum offset.

Club

If you want to give to a club – a vereniging in Dutch – then you can deduct this
from your income if it is a periodic gift. This means that you give the same
amount each year, in one go or in smaller amounts, you do this for at least five
years and you specify when the gift will stop.

‘For example, after five years or if you die,’ suggests the Dutch tax office.

You need to have laid down the agreement in a contract with the club, or via a
notary, and it is also important for tax purposes that you receive nothing in
exchange for this gift – so a ‘donation’ to a hockey club so that your children
can play hockey would not count.

People

In some countries, you can be as generous as you like to your friends with no
implications – in the UK, as long as it’s seven years before your death, for
instance. But in the Netherlands, gifts to people are taxable if they are more than
€5,000 (so don’t think that it’s tax free if your dad renovates your house, and
you ‘gift’ him €10,000).

‘Gift tax,’ warns Blue Umbrella, ‘can be 10% or 25%, and if the giver lives in
the Netherlands, normally the giver will pay this tax.’

If you want to give to your children money, you can give a maximum of €5,677
this year, and once in their lives you can give them a larger gift tax-free. You
can give a gift, or schenking, of up to €27,231 for any purpose. Currently you
can give an increased amount of €106,671 for your child between 18 and 40 to
buy a house.

Watch out

Do it now, though. Because this benefit has been accused of pumping the cost
of housing for first-time buyers, it is being withdrawn from January 2023.

Beware, also: the Dutch tax office warns that ‘gifting on the day of the 40th
birthday is also possible’ – but a day older, and the benefit expires.

Less controversially, you can give your children up to €56,724 to pay for
expensive studies, if they are between 18 and 40, the studies cost at least
€20,000 per year (disregarding living costs), and you have not used this benefit
or the housing gift benefit before.

‘If you intend to transfer wealth to your child before you die,’ adds the Blue Umbrella spokesman, ‘seek tax planning advice.’

For advice on all tax matters for expats, contact Blue Umbrella

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