Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!
—The Red Queen to Alice
That quote sums up how many of us feel about the Dutch wealth tax—better known as Box 3 taxation. You sprint day after day, trying to build a future, yet the system keeps shifting the finish line.
I’m not asking to be tax-free, and I understand that taxing income is complicated. But the tax-free allowance of €57,000 feels like a cruel joke. How can anyone hope to retire comfortably when that threshold barely accounts for inflation or rising living expenses?
Now imagine where we’ll be 30 years from now, with inflation eroding that €57k further and an aging population (vergrijzing) burdening younger generations. And yet, if you save or invest outside traditional pension routes, the wealth tax ensures you’re punished for your efforts—forcing you into a relentless Red Queen’s race.
It’s a question I struggle with a lot: How can I, as an independent worker, find a way to build a nice pension? Is that even allowed?
1. Understanding the Dutch Box 3 System
In the Netherlands, savings and investments fall under Box 3 for income tax purposes. Historically, the Tax Authorities assumed a fictional rate of return on all your assets and taxed you accordingly—often at a rate higher than your actual gains.
Key Details:
- Tax Rates: In 2023, you pay 32% on this “notional return.” From 2024, this increases to 36%.
- Tax-Free Allowance: €57,000 for individuals (€114,000 for tax partners). While this might sound reasonable, skyrocketing property values and market growth can quickly push you above the threshold.
Example:
Imagine you have:
- €40,000 in savings
- €80,000 in investments (stocks, crypto, etc.)
- €8,000 in debt (after the debt threshold, €4,600 is considered).
Total taxable assets: €115,400.
The government applies notional returns—say 4.29%—across different asset categories. After subtracting the tax-free allowance (€57,000), you’re left with €58,400 subject to taxation.
At 32%, your tax due is approximately €801, even if your actual returns are significantly lower—or zero.
Now imagine paying this every year while trying to save for retirement or reduce your working hours. Pension funds are notoriously well positioned (for now) in this part of the world.
In the Netherlands, jobs with strong pension benefits are often tied to sectors with robust collective labor agreements (CAOs) and industry-wide pension funds. Public sector employees, healthcare professionals, teachers, and workers in utilities, construction, and transportation typically enjoy stable pensions through funds like ABP, PFZW, and BPF Bouw.
Multinationals and financial sector companies often provide their own comprehensive corporate pension schemes. For the self-employed, options like the ZZP Pensioenfonds or private plans offer alternatives, albeit less common.
Additionally, the Dutch state pension, AOW (Algemene Ouderdomswet), provides a basic income starting at the state pension age (currently around 67). AOW is funded through a pay-as-you-go system, where working citizens contribute via taxes to support current retirees. While AOW serves as a foundation, most individuals rely on workplace pensions or personal savings for financial security in retirement.
2. “But I’m Not Rich!”
The spirit of “tax the rich” is understandable, maybe. I also don’t like that, but for the sake of this blogpost let’s agree on that there needs to be a tax on wealth, apparently. Box 3 often hits middle-class savers the hardest.
- Skyrocketing House Prices: Modest properties can push you over the threshold, especially if you own a home you don’t live in (e.g., a rental property).
- Self-Employed Challenges: Without a pension plan provided by an employer, self-employed individuals often invest in alternatives like Bitcoin, rental properties, stocks and/or mutual funds. But these investments can easily trigger notional taxation under Box 3.
The Unintended Targets:
While the truly wealthy use tax advisors to minimize exposure, ordinary people trying to secure a future end up paying the price.
3. Paying Real Money on Imaginary Returns
One of the most frustrating aspects of Box 3 is its reliance on fictitious returns. You’re taxed on earnings you might never see, forcing you to:
- Outperform the Tax Rate: If the assumed return is 4–5% and you’re earning only 2%, you’re effectively losing money.
- Sell Assets or Work More: Even without real profits, you’re on the hook. This might mean liquidating investments or grinding harder at work just to pay taxes on “theoretical” income.
4. Low Thresholds, Steep Consequences
This isn’t about abolishing taxation—governments need revenue. But shouldn’t there be a clearer distinction between “mega-rich oligarchs” and regular people with modest savings?
- Low Threshold: The €57k exemption hasn’t kept pace with inflation or asset appreciation, dragging more people into the taxable range each year.
- Erosion of Savings: As inflation bites, that €57k buys less over time, while the tax continues to siphon off your savings.
I’m not asking for a free ride—just a fair chance to secure my future without being penalized for trying to work outside traditional pension systems.
5. The Red Queen’s Race
To return to the metaphor: in this race, you’re running just to stand still. Each year, you must beat the state’s presumed returns or pay tax regardless. Meanwhile:
- Aging Population (Vergrijzing): Younger generations face growing burdens through taxes and social security contributions.
- Inflation: The tax-free allowance loses value year after year, making the system even more unfair.
This dynamic traps savers in perpetual hustle mode, running harder and harder to cover taxes on an imaginary yield.
6. Toward a More Balanced System
Dutch authorities plan to shift to a capital gains tax by 2025/2026, where you pay taxes on actual returns. By the time of writing it is unclear when this is about to happen, if at all. This is a step in the right direction, aligning taxes with reality. Again, if you agree on taxations on wealth at all.
Still, Questions Remain:
- Fairness Across Investments: Will large pension funds, which manage client wealth, face the same capital gains tax as individuals? Spoiler alert: probably not. Rules for the young, not for the (pensioned) old.
- Alternative Investments: Bitcoin, often viewed as a hedge against inflation, becomes difficult to hold when you must liquidate part of your position annually to cover taxes.
The Bitcoin Example:
Bitcoin is a prime example of how the wealth tax chips away at a finite asset:
- Forced to Sell: Each tax cycle might require you to sell Bitcoin to raise euros for the tax bill.
- Compounding Losses: Over time, this erodes your position, limiting your long-term upside.
- Inflated Denominations: Meanwhile, the euros you receive for selling Bitcoin can be devalued by central bank policies.
This effectively transfers a finite, inflation-resistant asset to the state for euros that are anything but finite.
Conclusion: Beyond the Slogan
“Tax the rich!” makes for a great soundbite. But the reality is that middle-class savers regularly bear the brunt of Box 3 taxation. It’s not about avoiding taxes or shirking civic duty—it’s about fairness and realism.
The planned capital gains system offers hope, but only if it accurately distinguishes between actual profits and hypothetical windfalls. Until then, many of us will remain stuck in the Red Queen’s race, sprinting harder every year just to keep pace with a system that never seems to slow down.
Final Note:
Whether it’s through a more progressive tax structure, better indexing to inflation, or realistic thresholds, a balanced system is not an impossible dream. It’s simply one we need to demand.
The younger generations work differently, and want to build a future, their (financial) security and pensions differently. But how?
For now, I’ll just keep running in this rat race.