Evaluation gift tax exemption for mortgage down-payments or prepayments

Gifts under the gift tax exemption for owner-occupied housing in 2017 and 2018 reduced total Dutch mortgage debt by at most 0.3 percent. Underwater mortgages hardly played a role in these years. Furthermore, the gift tax exemption reaches households with a relatively favourable financial position. These are the main conclusions in an evaluation of the structural enlargement of the gift tax exemption for owner-occupied housing by SEO Amsterdam Economics, commissioned by the Ministry of Finance.

The government increased the tax-exempt gift amount for owner-occupied housing from 53 thousand euros to 100 thousand euros in 2017. Everyone aged between 18 and 40 years can receive this amount once (per recipient), possibly spread out over three years, for mortgage prepayments, purchasing a house or a renovation. The possibility to spread the gift over three years did not exist before 2017. Additionally, the tax exemption was limited to gifts from parents to their children before 2017. The objective of the structurally enlarged gift tax exemption was to reduce mortgage debts and to reduce the percentage of mortgages where the debt exceeds the value of the property – so-called underwater mortgages.

The impact of the reform on the total Dutch mortgage debt is at most limited. The maximum impact of the 2.2 billion euros of tax-exempt gifts granted in 2017 and 2018 amounts to a reduction in the total mortgage debt by 0.3 percent.

Problems with underwater mortgages hardly played a role in the Netherlands during these years. In this respect only a minor effect of the gift tax exemption can be expected. Furthermore, the financial position of homeowners who received a tax-exempt transfer is favourable compared to the homeowners who did not receive a transfer. The gift tax exemption is therefore not well aimed at the reduction of underwater mortgages.

The reduction of the maximum mortgage relative to the property value to 100 per cent, and the fiscal mortgage repayment requirement have been more effective in limiting the financial vulnerability of households and reducing the risk of underwater mortgages than the gift tax exemption. This is the case because these measures, which were introduced earlier, apply to everyone. The gift tax exemption only reaches a small group of homeowners with a relatively favourable financial position, thus increasing wealth inequality within generations.

SEO Amsterdam Economics used detailed administrative information at the household level from the Tax and Customs Administration, combined with demographic information in a secure microdata environment at Statistics Netherlands. Furthermore, the researchers have interviewed experts, mortgage advisors, policy makers, and the Tax and Customs Administration staff. Additionally, the researchers have studied policy documents and the (international) literature.

Read the letter (in Dutch) to Parliament by Vijlbrief regarding this report here.