This new additional loan regulation, or bijleenregeling, is designed to encourage taxpayers to use the proceeds from the sale of a private home to finance a new private home.

Starting January 1, 2004, the bijleenregeling will apply to residential property purchased after that date.  When selling one property and purchasing another, the proceeds from the first house (price minus the mortgage and costs) will be subtracted from the amount to which you can deduct interest payments on the second house.

Here is an example of how it works:

You buy a house for EUR 150,000 and obtain a mortgage for the full amount.

You later sell this house for EUR 260,000 and buy a property for EUR 320,000. You want a mortgage to cover the entire cost of the new home.

But as a result of the bijleenregeling, you are expected to use the entire sales proceeds of the first house for the purchase of the new house. Whether the taxpayer actually does this is irrelevant.

The sales proceeds in this case are EUR 110,000. We note that these are net sales proceeds. Any sales costs can therefore be deducted from the sales price. The net sales proceeds form the so-called "private home reserve".

Since the sales proceeds of the first house are deemed to be invested in the purchase of the new house, the taxpayer cannot deduct the interest on the entire amount of the mortgage.

You received a mortgage for EUR 320,000, but only the mortgage interest on EUR 210,000 is deductible in Box 1. Thus, the paid mortgage interest on EUR 110,000 (the sales proceeds of the old house) cannot be deducted. This part of the debt can, however, be deducted from the yield base in Box 3.

The  private home reserve is deemed to exist for five years. Therefore, if you wait three years to buy a new home, you will still have to take the private home reserve into account.

A house that is currently let by a taxpayer and that he subsequently moves into himself is deemed to have been purchased by the taxpayer.

The implications of the bijleenregeling can be far-reaching if a taxpayer moves into a new private home after 1 January 2004, or sells his old house.

It can also arise when a taxpayer works abroad for a certain period and lets his private home in the Netherlands for the duration of that period.

If a sale or purchase of the private home takes place before 1 January 2004, the bijleenregeling does not apply. The bijleenregeling will also not apply to a house that no longer qualified as private home before 1 January 2004, e.g., because it was let to third parties.

Expats need to assess the impact of this regulation on their house buying plans and should consult an expert before deciding to buy or sell a property.

Please note that the above explanation is not exhaustive. The regulation contains a number of specific conditions. If you have any further queries about this regulation, you should contact your mortgage advisor.

• Arjan Hovenkamp is a manager in the Deloitte expatriate services practice in Amsterdam, which provides services and consulting to local and international companies.

28 January 2004