Tax consequences of reimbursing non-deductible annuity premiums

Annuity premiums

Annuity premiums are deductible under strict conditions. Additionally, there are maximum amounts that you can deduct each year. These maximum amounts depend on the extent of your pension shortfall, expressed in your annual allowance and your carry-forward allowance.

The annual allowance represents the pension shortfall you had in the previous year. So, the annual allowance for 2024 depends on your pension shortfall in 2023.

If you don't utilize all of your annual allowance in a year, the unused portion is carried forward for ten years. These unused annual allowances together form your carry-forward allowance.

Tip! You can deduct annuity premiums in a year up to the amount of your annual allowance and carry-forward allowance. The Tax Authorities provide a tool on their website to calculate the annual allowance and carry-forward allowance.

Requesting a refund of non-deductible annuity premiums

If you paid more annuity premiums than you can deduct, you can request the financial institution to refund the non-deductible portion. According to legal regulations, refunding a portion of the premium would mean that you have to pay tax on the entire annuity in box 1 plus a 20% revision interest charge. However, a decision has been approved allowing the refund of the non-deductible portion without such a settlement.

Note! Certain conditions apply to this approval. For instance, the earned return on the refunded premium must also be refunded. Additionally, a declaration of 'silent repayment' must be provided.

Declared in box 3

Another condition for the tax-free repayment is that you include the refunded amount in box 3; not only in the year of repayment but also in the preceding years.

Example:
You took out an annuity in March 2021 and paid €10,000 in premiums for it in 2021. When filing your income tax return, you find out that only €6,000 is deductible. In 2024, you request a refund of €4,000 from the financial institution where you took out the annuity. The financial institution pays this amount to you in mid-2025. Additionally, the financial institution pays out the return earned on the refunded premiums.

This means that you must include the refunded amount plus the earned return on it in box 3 of your income tax returns for 2022, 2023, 2024, and 2025.

In the category of other assets

The Tax Authorities state that you must report this amount in the category of other assets. Therefore, according to the Tax Authorities, you cannot report it in the category of bank deposits. This is unfavorable because the category of bank deposits has a much lower deemed return than the category of other assets. For the year 2023, the deemed return for bank deposits is 0.92%, while for other assets, it is 6.17%.