You have probably already received information about settling the ground lease from the municipality several times, but would settling the lease actually be in your best interest? And if so, how would you pay for it?
For many homeowners, settling the ground lease for properties in Amsterdam could potentially be a good option. For instance, if you intend to stay in your current home for the long term, a single lump sum payment could actually be much more cost-effective than making your annual lease payments. Settling the ground lease can also make your home more appealing to future buyers.
Until the end of 2019, the municipality of Amsterdam will base the settlement on the relatively favorable WOZ (property tax) value from 2014 (unless the WOZ value from 1-1-2015 is lower). Furthermore, homeowners will receive a 25% discount on the settlement payment and the new lease in the eternal ground lease system. This premium will also be given if you decide to switch to eternal ground lease after 2019, but the advantage of the favorable 2014 WOZ-value will no longer apply. Which is why this is the ideal moment to consider settling the ground lease.
Due to the complexity of the issue, we realize that you may wonder whether settling the ground lease is also a good option in your specific situation, taking into account:
- the financial advantage
- the security that you “buy”
- the potential value increase of your property
Arguments in favor of settling the ground lease are:
Jan Maarten, Poundwise
In order to answer these questions, we can help you with a calculation and/or a “ground lease recommendation”. In order to do so, it would be helpful to us if you already have an offer from the municipality with the proposed lump sum payment for your property. You can apply for this offer on https://erfpacht.amsterdam.nl/portaal/login/
Arguments in favor of settling the ground lease are:
- You are no longer dependent on the municipality’s whims.
- Banks more readily grant a mortgage on a freehold property.
- A freehold property is easier to sell, as there are fewer uncertainties for the buyer.
- Building land, particularly in the city and in desirable areas, is scarce.
What should you keep in mind?
Of course, you should always be cautious. Key considerations are:
- Will you be able to earn back the settlement payment upon sale of the property?
- Ground lease settlement is not tax deductible, whereas the annual lease is
- What are the involved financing costs?
Please note that your decision will not have any effect in terms of municipal taxes – the WOZ tax assessment is always based on freehold value.
Get acquainted?
Mark de Jong
Tax advisor/financial planner
