For income tax purposes 3 types of taxable income are distinguished. These income types have been classified into 3 so-called boxes:
The following overview shows the income, deductible expenditure and tax rates pertaining to each box.
| Box 1: Taxable income from employment and home ownership | Box 2: Taxable income from a substantial interest | Box 3: Taxable income from savings and investments |
|---|---|---|
Wages, pension payments, social benefits Profits from business activities Negative expenditure on income insurance Negative personal allowance Periodic benefits |
Income from shares and profit-sharing certificates that are part of a substantial interest Income from the disposal of these shares and profit-sharing certificates |
Notional yield (4%) on capital (assets minus liabilities): the income from savings and investments |
| Deductible expenditure Box 1 |
Deductible expenditure Box 2 |
Deductible expenditure Box 3 |
|---|---|---|
|
Deduction of mortgage interest and other deductible expenditure Expenditure on income insurance: annuities and other premiums |
Deductible expenses Offsettable losses from a substantial interest |
None |
| Deductible items not related to any of the boxes |
|---|
| Tax rate Box 1 | Tax rate Box 2 | Tax rate Box 3 |
|---|---|---|
Progressive, with a maximum rate of 52% |
25% |
30% |
If your income falls into two or three different boxes, its components will be treated and – where possible – taxed separately. This means that:
Deductible expenditure that is directly related to revenue in a particular box will reduce the income in that box.
Example
The income from an owner-occupied property falls in Box 1. If you contracted a loan to purchase the owner-occupied property, the interest paid is deducted from the income from the property. Both the property and the loan pertain to Box 1.
Some types of deductible expenditure are not directly related to particular revenue. Examples of such expenditure are donations and extraordinary illness-related expenses. These types of deductible expenditure together constitute the personal allowance. The personal allowance can be deducted from your income in Box 1. Any remaining expenses can be deducted in Box 3 and Box 2.
The tax you owe on the income in the three boxes is levied as one amount with any national insurance contributions owed. This amount is reduced by the tax credits to which you are entitled. More information can be found at:
Throughout this text, reference is made to various types of income. The terms 'income from a substantial interest' and 'income from savings and investments' are defined in the Glossary.
