Tax guarantee

What is a tax guarantee?

A tax guarantee is an agreement between you and the liable insurer whereby that insurer guarantees to cover any tax levied on (part of) your personal injury compensation. Should the Tax and Customs Administration subsequently levy tax on an amount covered by the guarantee, the insurer will pay that tax, not you. This ensures that the compensation you receive truly remains yours.

The guarantee was established because personal injury claims often involve large sums of money and long durations. Compensation for future loss of income or lifelong healthcare costs is sometimes paid in a single lump sum as a final settlement. In principle, you do not have to pay income tax on the compensation itself, but such a large amount in your account can have consequences for your assets in the years that follow. A tax guarantee eliminates that uncertainty.

Important to understand: a tax guarantee is neither a tax exemption nor a tax avoidance trick. It is simply insurance against the risk of unexpectedly being presented with a tax bill regarding funds intended to cover your damages. The guarantee shifts that risk from you to the party responsible for your damages.

In practice, the tax guarantee is included in the agreement by which your case is settled. This states exactly which part of the compensation is covered by the guarantee and under what conditions the insurer assumes the tax. Do you want to know exactly which items of damage are included in your compensation? Then view our explanation regarding compensation.

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Is my personal injury compensation taxable?

This is perhaps the question that is on people's minds the most. The short answer is reassuring: personal injury compensation is, in principle, tax-exempt. You therefore do not pay income tax on it. This applies both to compensation for your material damage (such as healthcare costs, travel expenses, and loss of income) and to the suffering you receive for your pain and loss of enjoyment of life.

The reason is that compensation is not income. It is compensation for something that has been taken from you or from which you have suffered, intended to repair your damage and acknowledge your suffering. The law does not view this as earnings, and therefore it falls outside of income tax. Consequently, you keep 100% of your compensation.

There is, however, an important distinction. The compensation itself is not taxed, but as soon as the amount is in your account, it forms part of your assets. And assets can count towards tax in later years, specifically in Box 3. We will come back to that shortly. It is therefore important to distinguish between the compensation (untaxed) and the assets resulting from it (potentially relevant for Box 3).

The manner in which your compensation is paid out can also play a role. Do you receive everything in a lump sum as a final payment, or in installments? And which part is intended for past losses and which part for future losses? Such details can make a difference for tax purposes. We ensure that the payment is clearly specified in writing, so that it is always clear what each amount is intended for. Our approach is aimed at properly arranging these matters in advance.

The difference between the compensation and the return thereon

A common misconception is that everything related to the compensation is tax-free. That is not entirely correct. The compensation itself is tax-free, but if you subsequently save or invest the money and earn a return on it, that asset falls under the normal Box 3 rules. It is then no longer about the compensation, but about your assets and the return thereon, just like any other savings. This distinction is precisely why a tax guarantee can be so valuable: it protects you against unexpected taxation arising from receiving that large sum.

Compensation and Box 3

Box 3 is the part of income tax that concerns your assets: your savings, investments, and other possessions, minus your debts. You pay tax on this above a certain limit, the current exemption. The exact amount and applicable rates change regularly; therefore, we refer to the current exemption and rates as they apply at that time.

What does this mean for your compensation? As mentioned, the compensation itself is tax-free. However, as soon as you receive a large amount, for example a final payment for future loss of income, your assets increase. If your total assets thereby exceed the current exemption, they may count towards the Box 3 tax in subsequent years.

A few points to keep in mind:

• It concerns your total assets. Not only the compensation counts, but your entire assets combined. If you already have savings or assets, the compensation is added on top of that.
• The exemption protects a portion. Up to the current exemption, you pay no Box 3 tax. Many people keep their assets below this limit, meaning there is effectively nothing to tax.
• The reference date applies. For Box 3, your assets on a fixed annual reference date are assessed. Therefore, when you receive the compensation can influence which year the levy applies.
• It can have an effect for years. If you keep the money for a long time, it can count again every year as long as it exceeds the exemption.

Precisely because a substantial compensation is intended to cover, for example, lifelong loss of income, it can feel unfair if you were to have to pay tax on it year after year. A tax guarantee can cover exactly this risk. Would you like to know how this works out for your situation? Our frequently asked questions provide further explanation, and your dedicated contact person is happy to think it through with you.

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Why a tax guarantee is important

You might be thinking: if the compensation is tax-free anyway, why do I need a guarantee? A valid question. The answer lies in the uncertainty and the duration of personal injury cases.

Compensation for future loss of income or for years of healthcare costs is often capitalized: the entire amount you would receive over the coming years is recalculated to the present and paid out in a lump sum. As a result, you receive a large sum now that is actually intended to be spread over many years. Without a guarantee, you run the risk that this amount increases your Box 3 assets year after year, and that you consequently pay tax on money you need to cover your future losses.

A tax guarantee protects you against this in a number of ways:

• Certainty. You know in advance that any potential levy on the guaranteed portion will not fall to you, but to the insurer.
• No surprises. You do not need to fear an unexpected assessment years after the settlement.
• Retention of your reimbursement. The reimbursement remains fully available for the purpose for which it is intended: your recovery, your care, and your future.
• Peace of mind. You can close the case and look ahead, without any lingering tax uncertainty.

Especially in larger cases involving substantial amounts or a long period of damage, a tax guarantee is of great value. It is a form of security that protects you against something over which you have little control: future changes in tax regulations or the way the Tax Authorities assess your assets. An experienced handler knows when such a guarantee is necessary and how to obtain it.

When does the warranty take effect?

A tax guarantee is recorded in the settlement agreement: the document by which your case is definitively settled. That agreement contains all arrangements between you and the liable insurer, including the amount of your compensation, the allocation across the various damage categories and, if necessary, the tax guarantee.

The moment this becomes relevant is therefore the final settlement of your case. This is usually the moment when it is clear how your recovery has progressed and what the lasting consequences are. Only then can the total damages be properly calculated and the final payout determined. It is precisely at that moment that it is crucial to assess whether a tax guarantee is desirable and, if so, to include it in the agreement.

In practice, the process unfolds roughly as follows. First, your full extent of damages is assessed: the past, present, and future. Next, a total amount is negotiated. If this results in a substantial final payment, for example for future loss of income or long-term care, we assess whether there is a tax risk and whether a tax guarantee is appropriate. Subsequently, we include the appropriate wording in the settlement agreement to ensure the agreement is legally binding.

It is wise to consider this in good time . Once you have signed the agreement without a guarantee, it is often difficult to add one afterwards. That is why we check during every final settlement whether a tax guarantee is applicable. Would you like us to assess your case regarding this? Feel free to make an appointment , and we will review it with you free of charge.

We will handle your tax guarantee during the settlement

A tax guarantee sounds technical, and it is. It is exactly the kind of detail that is easily overlooked when negotiating with an insurer yourself. And that can cost you dearly later on. We ensure that it is properly arranged, without you having to delve into the fiscal intricacies.

Our assistance is 100% free of charge. The liable insurer pays for our services pursuant to Article 6:96 of the Dutch Civil Code, so you will never receive a bill and you keep 100% of your compensation. You will have your own dedicated contact person who will guide you through the entire process; we work throughout the Netherlands and, if desired, will simply come to your home. We are affiliated with the NIVRE, the NKL , and the Personal Injury Council, so you know that you are in expert and reliable hands.

This is how it works in practice. You contact us and tell us what happened. We assess your case, determine the full extent of your damages, and negotiate with the insurer on your behalf. If a final settlement is reached, we check whether a tax guarantee is required and ensure that the correct terms are included in your settlement agreement. This prevents you from facing any surprises afterwards. You are kept informed at every step by your own dedicated contact person, so you do not have to worry about legal jargon or complicated documents.

Feel free to contact us. If you call or email today, we will call you back the same working day. We listen to your story, handle your case from start to finish, and ensure that your compensation remains yours, including for tax purposes. You are in a stronger position than you think.