As an expat navigating the dynamic Dutch housing market, you might find yourself in the fortunate position of selling a property with significant equity (overwaarde). While this profit is a great asset for your next move, it introduces a crucial piece of Dutch tax law: the bijleenregeling.
The bijleenregeling (often translated as the Additional Borrowing Rule or the Equity Investment Rule) significantly impacts how much of your new mortgage interest is tax-deductible. Ignoring this rule can lead to unexpectedly higher monthly housing costs.
This post breaks down this essential regulation, ensuring you make informed financial decisions when purchasing your next property in the Netherlands.
1. What Is the Bijleenregeling and Why Does It Matter?
The bijleenregeling is a fiscal measure implemented by the Dutch Tax Authority. In short, the rule encourages homeowners to reinvest the equity (overvalue) made from selling their previous home into the purchase of their next home.
The Financial Incentive
You are not legally obligated to reinvest this equity. However, if you choose not to, you will lose a key financial benefit: the Mortgage Interest Deduction (HRA).
The rule states that you are only eligible for the HRA on the purchase price of your new home minus the equity you made from the previous sale.
In essence: If you take out a larger mortgage to use your equity reserve for a new car or a gift to family, the interest on that extra portion of the loan will not be tax-deductible. Therefore, to maximize your tax benefits, you must put the overvalue into your new property.
2. Overvalue vs. Equity Reserve (Eigenwoningreserve)
While ‘overvalue’ refers to the positive difference between your old home’s selling price and the outstanding mortgage, the bijleenregeling actually uses a broader term: the Eigenwoningreserve (EWR), or Owner-Occupied Home Reserve.
It is important to understand that the EWR is often cumulative. If you sold a home with profit three years ago and just sold another one with profit today, your EWR is the sum of both amounts. This means your reserve may be larger than the profit from your latest sale.
Furthermore, if you previously sold a house at a loss (incurred a residual debt), that negative amount is deducted from any current or future positive equity reserve. Ultimately, your EWR dictates the minimum amount you must invest in your new home to retain full HRA benefits.
3. The Three-Year Rule: Duration of the Bijleenregeling
A critical feature of the bijleenregeling is its validity period. The rule, and thus the requirement to invest your EWR, only applies for a period of three years after the sale of your previous property.
What Happens After Three Years?
If you buy a new house more than three years after selling your previous one, the EWR from that sale expires.
This is significant because, once the EWR has expired, you are no longer obliged to use the overvalue to reduce your mortgage. You can then use your equity however you wish—for investments or other purchases—while still retaining full mortgage interest deduction eligibility on the total loan taken out for your new home.
Why the Three-Year Limit?
The government set this long period to prevent tax avoidance. If the period were shorter, people could simply rent a home temporarily to bypass the rule. By making the reserve last three years, the high cost of temporary renting generally outweighs the potential tax benefit, thus maintaining the integrity of the HRA system.
4. Calculating the Bijleenregeling: A Practical Example
Understanding the actual financial impact is key. Here is how the bijleenregeling calculation works:
Scenario:
- You sold your previous home, leaving you with an EWR (overvalue) of € 50,000.
- You purchase a new home for € 300,000.
The Calculation:
To qualify for full HRA, the maximum amount you can borrow is:
| Item | Amount |
| Purchase Price of New Home | € 300,000 |
| MINUS Equity Reserve (EWR) | € 50,000 |
| Maximum Deductible Loan | € 250,000 |
Conclusion:
If you take out a mortgage of € 250,000 (meaning you invest the € 50,000 EWR), the interest is fully deductible. If you borrow, say, € 280,000, the interest on the surplus € 30,000 will not be deductible.
5. Fiscal Partnership and the Bijleenregeling
For expats who are purchasing a home with a fiscal partner, the rules become more layered.
- Personal Reserve: The EWR is personal. If you and your partner jointly sell a home and buy a new one, you must account for both partners’ individual EWRs from the sale.
- Moving In Together: If you move in with your partner and become fiscal partners, you must still bring in your personal EWR from the sale of your previous sole-owned property to ensure the full HRA on the new joint mortgage.
It is essential to calculate the EWR for both partners when determining the maximum deductible loan for your shared new home.
6. Using Overvalue for Renovations
Many people want to use their overvalue to pay for a brand-new kitchen or an extension. Fortunately, you can use your EWR to fund necessary renovations or improvements to your new property and still satisfy the conditions of the bijleenregeling.
If you pay for renovation costs directly out of your overvalue, those costs effectively reduce the EWR amount that you are required to invest in the purchase price of the home. This allows you to retain HRA on a slightly higher mortgage amount for the purchase itself.
7. The Bridge Loan (Overbruggingskrediet) Solution
A common challenge arises when you buy your new home before the sale of your old home is finalized. In this situation, the overvalue is calculated but the money is not yet in your bank account.
To bridge this gap, banks offer an Overbruggingskrediet (Bridging Credit).
This is a temporary loan, typically covering the amount of your anticipated overvalue. It allows you to use the equity immediately for your new purchase. Once the proceeds from the sale of your old home are received (after the notary signing), you use those funds to pay off the Bridge Loan in a single lump sum. This ensures you can adhere to the requirements of the bijleenregeling without waiting for the transaction to complete.
Your Next Steps
The bijleenregeling is a cornerstone of Dutch property tax law that directly influences your net mortgage costs.
To ensure you are fully optimizing your tax position and accurately calculating your maximum deductible mortgage, we strongly recommend consulting a financial expert. Our dedicated mortgage advisors specialize in expat financial scenarios and can help you navigate the complexities of your Eigenwoningreserve and the bijleenregeling.
