New box 3 rules may not work out well for owners of gold and silver

Dutch people who own gold, silver or other precious metals as investments may have to deal with a significant tax increase. The government presented a new plan for box 3 on Tuesday.

Shares will receive a capital gains tax from 2028, which will only be settled upon sale. Cryptocurrencies and also physical gold and silver seem to have to wait two years longer.

It is still a proposal. The House of Representatives and the Senate must agree to this. Nevertheless, the consequences for owners of physical gold and silver are considerable if the plans continue. Especially in 2027, the tax burden will increase.

Anyone who owns physical gold, silver, platinum or palladium as an investment is currently in box 3. The Tax and Customs Administration counts movable property that is held as an investment among the other assets. Possessions for personal use are in principle exempt.  

That distinction is relevant for jewellery, for example. A gold piece of jewellery for personal use usually does not fall into box 3. In principle, this does include gold bars or gold coins that someone holds as an investment.

In 2026, a flat-rate return of six percent will apply to other assets. 36 percent of the calculated box 3 income is then taxed. The tax-free capital amounts to 59,357 euros per person and 118,714 euros for tax partners.  

That will change next year. The government wants to reduce the tax-free assets to 30,846 euros per person in 2027. That is the level of 2020. At the same time, the flat rate for other assets will be increased by 1.5 percentage points. Those two measures should fund part of the new box 3 plans.

For owners of precious metals, this means that they may owe tax earlier and that the tax burden on the taxed capital increases. With a flat rate of 7.5 percent and a tax rate of 36 percent, the tax arithmetically amounts to a maximum of about 2.7 percent of the taxed capital, compared to about 2.16 percent at the current flat rate of six percent.

This is independent of the possibility of making a lower real return plausible when the rules apply.

From 2028, the government wants to radically change the system. The starting point is more often a capital gains tax. In addition, value increases are not taxed every year. In principle, the tax authorities settle when the profit is actually realised.

The government deliberately chooses an intermediate step. From 2028, capital gains tax will be extended to all financial instruments. The Letter to Parliament mentions, among other things, shares, bonds and options. According to the government, this method therefore covers about 90 percent of box 3 capital with value development. 

For other assets, the full switchover according to the proposal will only follow in 2030. The letter does not mention gold, silver and other precious metals separately. This means that it is not possible to definitively determine how each product is legally classified from the Letter to Parliament alone.

For physical precious metals, however, classification with the other assets is obvious. After all, physical gold bars and silver coins are not shares, bonds or options and are now treated as movable investments within box 3. This would mean that owners would not yet benefit from the same capital gains system as investors in financial instruments in 2028 and 2029.  

The difference can be large. In the case of a capital gains tax, the tax on the increase in value only arises when the profit is realised. In a system that taxes interim appreciation, tax may be due while the precious metal has not been sold at all.

According to the proposal, the current tax-free capital will also disappear from 2028. This is replaced by a tax-free result of 1,000 euros.

This may create a striking difference between direct ownership of precious metals and investing via the stock exchange.

Anyone who owns a goldable physical property holds a movable property. On the other hand, those who gain exposure to the gold price via a listed financial product own a financial instrument. Whether a specific gold fund, ETF or ETC is actually covered by the new regulation from 2028 depends on the legal form of that product and the final legal text.

The government writes that by 2030, the other assets must also switch to a full capital gains tax. This would mean that the temporary distinction would disappear from that moment on. 

It's not that far yet. The government itself speaks of an "ambitious timetable". The amendment must be regulated by means of a novella on the Act on Actual Return Box 3 and adopted by the Senate before 31 December. The Council of State is therefore expected to be asked to provide advice as a matter of urgency.