Selling your house with excess value? This is what happens for tax purposes in 6 situations.

If you are currently looking for a home, you will probably receive an unexpected fortune for your own home. Nowadays, the house value is often higher than the mortgage debt, this is because house prices rose sharply in 2013. Does the house yield you more than the outstanding mortgage debt? Then you have excess value. There are several other ways to get a surplus value on your house. The fact that the market value is rising is not necessarily the only reason why there is a surplus value.

Surplus value on your house

The majority of people who have sold their house with a surplus value, use this surplus value to buy a new house. This is not necessary, you can of course also move in with your loved one or perhaps for a completely different reason not yet buy a house. The surplus value is then a lot of money that ends up in your bank account. You can save this surplus money, you have various options for investing it or you can spend it. This does have tax consequences. In box three, you pay tax on your assets. This can climb steeply if you have a lot of money from the surplus in your account. If a surplus value is released when you sell your own home, it will be registered with the tax authorities as owner-occupied home reserve. If you sell the property with a residual debt, this is referred to as a negative owner-occupied home reserve with the tax authorities. If you have paid off the mortgage, a surplus value can arise and if you split up and are bought out by your partner, a surplus value can also arise.

The additional loan scheme

When you buy a new home, the mortgage can affect the additional loan scheme. Thanks to the additional loan scheme, it is fiscally attractive to use the surplus value for your new house within 3 years, after you have sold your old house. It is therefore not compulsory. If you take out a mortgage without using the surplus value (or part of it), then you will not receive mortgage interest relief over the part that equals the unused surplus value. After 3 years, your additional loan scheme expires and you will get mortgage interest relief on the entire mortgage amount without using your excess value.

So the additional loan scheme is a limitation of the mortgage interest deduction. By applying this, the government is trying to prevent the mortgage debt being kept unnecessarily high and people enjoying the mortgage interest deduction, while you are living it up with the surplus value. Before the top-up regulation was introduced in 2004, this happened too often. It is a good idea to use the surplus value to finance your own home, as you can use it to reduce your monthly costs.

The rules concerning the surplus value when selling the house are discussed together for all six situations.

1. Using the surplus value to buy a new home

2. Using the surplus value for the joint purchase of a house

3. Using the surplus value for a renovation

4. Using the surplus value to buy a second home.

5. Not using the surplus value and moving to a rented house

6. Not using the surplus value and moving into your partner's house

Situation 1: Using the surplus value to buy a new home

Most people use the surplus value to buy a new home. You then retain the right to deduct mortgage interest according to the top-up scheme. The additional loan scheme applies to a cheaper house, but also to a more expensive house. If the house is too cheap to use all the surplus value, it does not lapse. Since you have not applied for a mortgage in this case, it does not matter that you have not received any mortgage interest deduction.

However, the three-year period of the additional loan scheme does remain applicable. If the house is sold again during that period, the surplus value must be recalculated. Including the surplus value of the first and second home.

Until the additional loan scheme for the surplus value(s) expires, it will affect the mortgage for a possible new home.

Bridging loan
The Tax Authorities therefore prefer that you use the surplus value for the new home. The surplus value is only released once the property has been sold and paid for, so this can be quite tricky. You have to bring in the surplus value yourself in order to buy the new house if the property has not yet been sold and paid for. Otherwise, you can take out a bridging loan. As soon as the surplus value of the property becomes available, you pay off the bridging loan. This is also a condition imposed by lenders. If there is any surplus value left over after a repayment, then it is best to put that amount into the new home. Otherwise, you will not be entitled to mortgage interest relief under the top-up scheme.

Situation 2: Using the surplus value to buy a house together

Even if you buy a house together, the additional loan scheme applies if one or both partners have excess value. How this works depends on the ownership ratio of the new house and whether you take each other's surplus value into account. You can each own 50 per cent, but you can also agree on a different ratio.

Let's take the example of a couple buying a new house for €250,000. One of them brings in a surplus value of €50,000, so for the remaining amount they have a mortgage of €200,000. In this scenario, both partners are 50/50 and take each other's surplus value into account. This means that half of the surplus value of €50,000 goes to the partner. So each partner brings in €25,000 in excess value and pays €125,000 for the new home. They both take on a mortgage debt of €100,000 that is fully deductible. You can also choose not to take the other person's surplus value into account. In this scenario, the partner can choose to contribute half of the €50,000 and not use the remaining €25,000. This partner can only deduct €75,000 of the mortgage debt instead of €100,000 according to the top-up regulation. The other partner has no surplus value so he can deduct €100,000.

Situation 3: Using the surplus value for a renovation

The top-up regulation also applies if you have surplus value through the sale of a house and then want to renovate. If you take out a mortgage for a renovation within three years of the surplus value being released, then you will only get mortgage interest relief if you use the surplus value.

Yet it is not necessary to always finance the renovation separately, says Verenging Eigen Huis (VEH). Are you going to renovate the house in the same year as you buy the new one? Then you can increase the purchase price by the renovation costs and then reduce the surplus value.

You can also use the surplus value for a renovation of a non-sold property. You can do this by increasing your current mortgage or taking out a second mortgage. The additional loan scheme does not apply here.

Situation 4: Using the surplus value to buy a second home.

If, for some reason, you do not want to invest the surplus in a new home. Then you can put this money into a second home instead.

Unlike an owner-occupied home, a second home is not included in Box 1 for working and living income tax purposes. The value of the second home and the debt (if any) both fall in box 3 for savings and investments. So if you take out a mortgage for a second home, this means that you will not get any mortgage interest deduction. Interest is deducted in Box 1 for the owner-occupied home. Your surplus value will remain on your books as an owner-occupied home reserve with the tax authorities, if you do not invest it in the purchase of an owner-occupied home.

If you take out a mortgage to purchase an owner-occupied home within three years of the release of the surplus value, then you will not be entitled to mortgage interest relief on the surplus value according to the top-up scheme.

Situation 5: Do not use the surplus value and move to a rented house.

The moment you sell a house with a surplus value and move into a rented property, this will end up in box 3. You will then have to pay capital gains tax on it. You then have to deal with the additional loan scheme.

The tax authorities register the surplus value as owner-occupied home reserve. If you buy a house within three years, you have to use the surplus value for this purpose if you want to be eligible for mortgage interest relief.

Should this situation occur, it is wise to put the surplus value aside. After three years, you can spend the surplus value on something other than your own home, without this having consequences for the mortgage interest deduction.

Situation 6: Do not use the surplus value: you move in with your partner.

You move in with your partner and sell your house with excess value. Your partner may have a rental or owner-occupied home. If you move into your partner's house, you do not put the surplus value into your own house. This surplus value also ends up as an owner-occupied home reserve in Box 3.

If, in this case, you decide to take out a mortgage for your own owner-occupied home within three years of selling your home, you will not only enjoy mortgage interest relief if you use the surplus value. If you move into your partner's house without making any arrangements, the same applies. In this way, your surplus value does not affect the other person's mortgage interest deduction. It is also possible that you buy into your partner's house, i.e. you become co-owner. Using the surplus value to buy into your partner's home is equivalent to using the surplus value to buy your own home. If you also need a mortgage, then you get the full mortgage interest deduction on this.

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