Is ground lease (erfpacht) tax deductible?
Sometimes, you buy a house in the Netherlands and you do not become the owner of the ground. Then, you have to pay rent for the use of the ground. This is what we call ground lease or leasehold, or in Dutch: erfpacht. What you have probably noticed is that house prices are often lower for houses that have ground lease. This is a logical consequence because every year, you pay a sort of rent to the owner (often the municipality): the ground rent (in Dutch: erfpachtcanon). The advantage is that this ground rent is deductible from your taxable income.
Ground lease tax deductible
If you buy a house with a ground lease, then you pay annual ground rent (erfpachtcanon). You can also choose to pay this ground rent monthly. The annual costs for the ground lease are deductible from your taxable income, just like the mortgage interest you pay.
How much ground lease do you have to pay
Annually you pay about 5% of the land value on the ground lease. Is the land value of your home € 50,000? Then you will lose an amount of €2,500 per year in ground rent. Please note that the land value is only fixed for a certain period (tijdvak). After this period, the ground value will increase with its land value of that moment. Alternatively, you could choose for perpetual ground lease, which is a fixed ground lease that remains at that level forever.
Buying off the ground lease: pros and cons
Sometimes, you can choose to buy off the ground lease. But is this smart? You can weigh up the pros and cons. Firstly, it is good to know that when you buy off the ground lease, it is no longer deductible from your taxable income. Are you taking out a loan to buy off the ground lease? In that case, the interest on this loan is tax-deductible. The advantage of buying off the ground lease is that you are no longer obliged to pay the ground rent annually. You also know that when the land prices in your region rise, it does not matter for your ground lease.
We are happy to help!
Are you buying a house with ground lease? Or do you have other tax-related questions when buying a house? If you bought a house, it could be wise to engage a tax advisor. We are happy to help you! Contact us using the details below.