Many Dutch couples feel the consequences of Book 1 of the Civil Code. It dates back to the French emperor Napoleon during his occupation stint in the Low Lands at the end of the 18th century. It has been modernized over time; although most of what a marriage meant 200 years ago in law is largely the same but people of the same sex can marry and a registered partnership is often treated the same in official actions as a marriage. When two people want to make their relationship more official they have a choice. Yes I do can be done at City Hall or over dinner. But there are a few real differences and I would like to focus on one, i.e. inheriting or being left with your partner’s half house and mortgage.
After a few years together expat Judy and Rob from Haarlem (both in their late 40s) have decided to consider a registered partnership. This is a suitable arrangement giving them e.g. equal tax benefits as a married couple. The arrangement is so common that you can jointly buy a house and jointly arrange mortgage financing on that basis.
So now they jointly (50/50) own a house. In the event of the death of one of them, it is intended that the house ownership will be transferred to the other. For the home ownership scheme, is there a difference between a will and a residence clause?
Yes, there is. If cohabitants have joint assets, such as a house, they can arrange for these assets to revert to the survivor after the death of one of them. You can arrange this with a will. But you can also arrange it with a “residence clause” in the title deed when you buy a house: in the event of death, the common assets automatically become the property of the surviving partner.
For the home ownership scheme of the Income Tax Act 2001, it has been determined that in the event of death, the home ownership history of the deceased tax partner passes to the surviving spouse. If the deceased has a mortgage debt related to the acquisition of the house this transitional right will also pass to the partner if he acquires the home and debt under inheritance law. The same applies to the repayment schedule if there is a home acquisition debt to which the tax repayment requirement applies.
Why is this important? New mortgages in the Netherlands require mandatory repayment in maximum 30 years if you want to deduct that mortgage’s interest payments from your taxable income. Before 2013 interest related to interest-only mortgages was also deductible. On existing interest-only mortgages transitional rights were given. So if you had an interest-only mortgage you can keep it to the extent you do not repay it. It is possible to structure Rob’s interest-only mortgage into their new mortgage. If the partner acquires home and debt on the basis of a will, this is an inheritance acquisition. If the partner acquires home and debt because of a residence clause, this is not an inheritance law acquisition.
Residence clause: disadvantage and advantage
The disadvantage of a residence clause is therefore that the transitional law for existing home acquisition debts does not pass to the surviving partner. The advantage of a residence clause is that for current home acquisition debt the repayment schedule does not pass to the surviving partner.
The survivor can opt for a new repayment schedule of a maximum of 30 years for the loan part obtained. Good chance the new repayment scheme is less demanding and expenses decrease. This can be convenient for a survivor.
Importance for practice
Whether a will or a residence clause is preferable on this point therefore depends on the “type of home acquisition debt”. A will is preferred for existing home acquisition debts. For a home acquisition debt to which the tax repayment requirement applies, a residence clause is preferable. Naturally, many more matters play a significant role in the choice of will versus residence clause. The civil-law notary is pre-eminently the adviser. With your notary’s input your mortgage advisor can make sure the most efficient debt structure is found to fit your needs!