Tax deduction of premiums for annuities (uitgaven voor inkomensvoorzieningen/ lijfrenteaftrek)

The Dutch Income Tax Act offers the possibility to deduct premiums paid for (future) income provision, such as annuities (in Dutch: 'lijfrenten') from the income from employment and main residence (Box 1 income).

An annuity is a life insurance which gives entitlement to a series of periodical payments if a certain event occurs.  

The basic mechanism which applies to annuities is that within certain parameters the premiums paid are tax deductible in Box 1, and that the later payments received (or if certain recognition events occur) are taxed in Box 1.

Various conditions apply for this tax deduction amongst others with regard to the maximum amount of the tax deduction, the nature and duration of the annuity insurance, the insurer and the beneficiaries of the annuity insurance.

Under certain conditions a transfer of money to a blocked bank account (in Dutch: 'banksparen' or 'lijfrentespaarrekening') or a blocked investment account (in Dutch: 'lijfrentebeleggingsrecht') can qualify as annuity.

In order to protect the Dutch tax claim on the future annuity payments, the law provides for various recognition events which can occur before expiration, for instance change of conditions of the insurance policy, the redemption of the policy before expiration, or emigration of the party who paid the premiums. If one of these events occur, the taxpayer (the one who deducted the premiums) must report the income received in Box 1 as a so-called negative expenses for annuities (in Dutch: 'negatieve uitgaven voor inkomensvoorziening').