What is annual allowance?
Annual margin is the amount you can use for tax deductible pension accrual in a year. This margin only arises if you accrued too little pension in the previous year. The calculation looks at your income and any pension rights. If you have a pension shortfall, the annual margin is created. If you have no deficit, the annual margin is zero. The annual margin is always used in the current calendar year. Unused annual margin from this year cannot be used later.
What is an annuity premium?
An annuity premium is the amount you deposit for supplementary retirement. You do this through an annuity account, investment account or insurance. With this deposit, you build up capital for later. You usually receive the benefit from your retirement age. You pay this premium yourself as an entrepreneur. Only premiums you actually pay are eligible for deduction.
Annuity premium deduction
You may deduct annuity premiums if you have annual or reserve room. This deduction immediately reduces your taxable income. You only deduct premiums you have paid in that same calendar year. If you deposit more than allowed, the excess is not deductible. However, that amount will remain in your annuity. Upon later payment, this part will not be taxed again.
When do you have no annual allowance?
You have no annual allowance if you have no pension deficit. This is the case, for instance, if you have accumulated sufficient pension. Even with a low or no income, the annual margin can come to zero. In addition, the annual margin expires some time after reaching the state pension age. In that situation, you can only use the reserve margin. Without annual margin, you cannot deduct any new annuity premiums.
Calculate annual margin
The annual margin is calculated using data from the previous year. Since the Future Pensions Act, the annual margin is 30% of the contribution base. The contribution base is your income minus a fixed franchise. Any pension accrual is deducted from this. What remains is your annual margin for the current year. The tax authorities use fixed calculation rules for this.
What do you need?
For the calculation, you need some data from the previous year. Without this data, you cannot determine the annual margin correctly.
- Your taxable income from the previous year.
- Data on pension accrual through an employer.
- The factor A from your pension statement, or €0 if you had no pension.
Sample annual allowance calculation
An example shows how the calculation works in practice.
- Profit last year: €50000.
- Franchise: €18000.
- Premium base: €32000.
- Annual space: 30% of €32000 is €9600.
You may deposit this amount tax-deductible into an annuity this year.
Reservation space
Reserve space is unused annual space from previous years. You may still use this space in later years. You can use unused headroom up to ten years ago. A statutory maximum applies per year. Always use the oldest reserve margin first. Unused headroom expires over time.
Sample reserve space calculation
Reserve space also works with simple addition.
- Three years ago, you had €1500 annual allowance.
- You did not deposit anything in that year.
- This amount moves into reserve space.
In a later year, you may still use this €1500 to deduct an annuity premium, as long as you stay within the legal limits.
What is a pension gap?
A pension gap occurs when you do not accrue enough pension. This is common among self-employed people because you do not build up a pension through an employer. You usually only accrue AOW. Periods without work or with a low income also increase the shortfall. The pension gap determines whether you have annual margins. The larger the shortfall, the more tax space you have.
State pension as a basic pension
The AOW is the statutory basic pension. Everyone who lives or works in the Netherlands accrues it. The AOW provides a minimum income. For most people, this is insufficient to live comfortably on. That is why additional pension accrual is necessary. For self-employed people, this is usually done through an annuity.
Future Pensions Act (WTP)
The Future Pensions Act has increased the tax space for pension accrual. Since 2023, you can use 30% of the contribution base for annual margin. You can also use annual margin up to 10 years back. In addition, you are allowed to continue to deposit for longer after reaching the state pension age. This law makes pension accrual for entrepreneurs more flexible and attractive.
Summary
As a self-employed person, you have to build up your own pension. Annual allowance gives you tax space to do so. You use this space via an annuity. If you have space from previous years, you use reserve space. The state pension is only a basis. By actively using annual margin, you avoid an unnecessarily large pension gap.
