Tax Treatment of Lump-Sum Alimony in Amsterdam
In Amsterdam, many divorcing couples opt for lump-sum alimony: a one-time payment instead of monthly installments. Tax-wise, this differs from periodic alimony. The lump sum is generally not deductible for the payer and only partially taxable for the recipient. This article follows the Income Tax Act 2001 and provides advice for Amsterdam residents.
What is Lump-Sum Alimony?
Lump-sum alimony means the paying party makes a one-time payment to the entitled party, ending future periodic payments. This often occurs with spousal or child support after a divorce in Amsterdam. Record the lump sum in a divorce settlement agreement or notarial deed, and have it approved by the Amsterdam District Court.
Tax-wise, periodic payments offer benefits—deductible for the payer and taxable for the recipient—but these largely disappear with a lump sum. For Amsterdam residents with high living costs, this can be a strategic choice.
Legal Basis for Amsterdam
The rules are set out in the Income Tax Act 2001 (Income Tax Act 2001):
- Spousal support: Art. 7.1 Income Tax Act (income from work) and art. 7.24 Income Tax Act (deduction). For the recipient, the lump sum falls in box 1.
- Child support: Art. 3.110 Income Tax Act (no box 3 tax from 2010). Lump sums are nontaxable for the recipient and nondeductible for the payer.
For establishment, the Code of Civil Procedure (Rv) applies (art. 157 Rv), reviewed by the Amsterdam District Court. Check the Tax Authority's Income Tax Guide for current rules.
Tax Impact for the Payer in Amsterdam
For the paying party, often the ex-partner with a higher income in expensive Amsterdam:
- Spousal support: Lump sum not deductible in box 1. Periodic payments are (up to 50% of income, with thresholds).
- Child support: Always nondeductible, whether periodic or lump sum.
Finance it from box 3 assets (deemed taxable). Advantage: no more indexation disputes in a city like Amsterdam with rising costs.
Tax Impact for the Recipient
For the entitled party, often handling childcare in Amsterdam:
- Spousal support: Taxable in box 1 as other income, increasing the tax burden with existing income.
- Child support: Nontaxable, falls in box 3 with deemed return.
Exception if linked to remarriage: potentially tax-neutral.
Comparison: Periodic vs. Lump-Sum
| Periodic (spousal) | Lump-Sum (spousal) | Periodic (child) | Lump-Sum (child) | |
|---|---|---|---|---|
| Payer | Deductible box 1 | Not deductible | Not deductible | Not deductible |
| Recipient | Taxable box 1 | Taxable box 1 | Taxable box 1 (until 2020) | Nontaxable (box 3) |
| Advantage | Tax-neutral | One-time certainty | - | No box 1 tax |
Practical Examples from Amsterdam
Example 1: Spousal Support
Jan from Amsterdam-Zuid pays €12,000/year to Maria. Lump sum €150,000: no deduction for Jan. Maria reports it in box 1; at 49.5% marginal rate, approx. €74,000 tax. Net €76,000 for box 3 investments.
Example 2: Child Support
Sarah in Amsterdam-Oost receives €6,000/year for the kids from Tom. Lump sum €100,000: no deduction for Tom. Sarah: box 3, approx. 1.2% deemed (2023: €1,200 tax). Better than periodic.
Rights and Obligations in Amsterdam
Rights:
- Freedom to agree on lump sum if reasonable (art. 1:401 Civil Code).
- Review by Amsterdam District Court in divorce proceedings.
- Recipient reports in tax return.
Obligations:
- Record in settlement agreement.
- Notify Tax Authority.
- No changes without court approval.
FAQs for Amsterdam Residents
Is lump-sum always tax-advantageous?
No, depends on type and income. Often yes for child support; spousal support risks higher tax. Get calculations from Amsterdam Legal Aid Office.
Can I revoke lump-sum later?
Only with consent or court (art. 1:404 Civil Code) on changed circumstances. Tax-wise, it's final.
How to report in tax return?
Spousal: box 1, question 8. Child: box 3 assets. Use Tax Authority app.
Applies to foreign alimony?
No, treaties like Brussels II separate. Check Tax Authority or Amsterdam Legal Aid Office.
Tips for Amsterdam Residents
- Get calculations: Consult a tax advisor or Amsterdam Legal Aid Office for personal simulation.
- Consult Municipality of Amsterdam for divorce support.
- Consider notary for airtight deed with Amsterdam District Court.