Taxing unrealised gains
The difference between realised and unrealised gains sounds technical. But it determines whether you pay tax on money you actually have, or on paper gains that could be gone tomorrow.
Realised vs. unrealised
Realised gains arise when you sell an investment. The money arrives in your bank account. You have liquidity. Only then do you pay tax. This is the principle most countries use for capital gains tax.
Unrealised gains are the increase in the value of your investment on paper. Your shares are worth more than when you bought them. But you have not sold them. You have not received any money. The gain exists only as a number on your screen.
The new Box 3 system (Wet Werkelijk Rendement, effective from 2028) taxes actual returns. This includes dividends and rental income, but also the appreciation of your investments, regardless of whether you have sold them. You pay 36% on the capital gains of your shares, even if you still hold them.
Simple example:
You buy shares for €10,000. At year-end they are worth €11,000. You sell nothing. Yet you pay 36% on €1,000 = €360 in tax, while you still own exactly the same shares.
Compounding destroyed
Compounding works because gains are reinvested and then generate their own returns. It is the most powerful mechanism behind long-term wealth building. Tax on unrealised gains hits this mechanism at precisely the wrong point: each year a portion of growth is skimmed off before it has a chance to keep growing.
Take an investor who invests €100,000 and earns 7% annual return.
Without tax on paper gains
With 36% tax on annual gains
Difference after 30 years: €389,750 less wealth
That is 51% of the final wealth you would have had without tax on unrealised gains. The money never exists: it is taxed away each year before it can grow.
Taxed on gains that evaporate
Tax on unrealised gains is calculated based on the value at the end of the tax year. But markets move. The value on 31 December can collapse afterwards, while the tax assessment has already been sent.
Suppose an investor holds €200,000 in technology shares.
Net value after tax: €159,600. That is €40,400 less than the opening value.
The investor loses money over a year where the market ended with a gain (+5%), but the tax on the intermediate peak means a real loss.
Forced to sell to pay the tax bill
This is the most concrete example of what taxing unrealised gains means in practice. The investor has no liquid funds to pay the assessment. The only thing he has are the investments themselves. He must sell to pay the tax authority.
Suppose an entrepreneur has built up his savings over the years in a share position of €400,000 in a growth company. He receives no dividends. His salary is consumed by living costs.
Annual cycle of forced selling
| Year | Portfolio value | Growth (12%) | Tax (36%) | Must sell |
|---|---|---|---|---|
| 1 | €400.000 | +€48.000 | €17.280 | €17.280 |
| 2 | €430.720 | +€51.686 | €18.607 | €18.607 |
| 3 | €463.799 | +€55.656 | €20.036 | €20.036 |
| 5 | €537.208 | +€64.465 | €23.207 | €23.207 |
| 10 | €719.504 | +€86.340 | €31.082 | €31.082 |
Assumption: 12% annual price appreciation, no dividend, no other liquid funds. Tax = 36% on annual gain.
In year 10 he must sell €31,082 to pay his tax bill.
Those shares can no longer grow. Not only does he pay tax on paper gains: he also loses all future returns on the sold shares. It is a double blow to his wealth.
Why does the Netherlands proceed with this?
The current Box 3 system (fictitious return) was ruled unlawful by the Dutch Supreme Court in 2021 and 2024, because it deviated too far from reality for savers and investors with low returns. The legislator had to design a new system that more closely reflects actual returns.
The alternative, a capital gains tax on realised gains, was also an option, advocated by a minority in parliament. That system would only tax upon sale. The downside for the government: revenue is uncertain and deferred, and investors can defer tax indefinitely by not selling.
The Wet Werkelijk Rendement opted for annual taxation on actual returns, including unrealised price appreciation. This guarantees the government a stable, annual tax revenue stream, but places the liquidity pressure on the investor.
Calculate your personal impact
Use our calculator to see how much tax you pay in 2026 (fictitious return) and in 2028 (actual return including unrealised gains), and what alternatives could mean for you.
Key points
- ·Unrealised gain = appreciation without selling
- ·Wet Werkelijk Rendement taxes paper gains too
- ·36% on annual price appreciation, even without liquidity
- ·Compounding over 30 years: 51% less final wealth
- ·Without liquidity: forced to sell investments
- ·Alternative (realised gains) was considered but rejected
The Wet Werkelijk Rendement has been passed by the Tweede Kamer. The Eerste Kamer has not yet voted. The effective date is 1 January 2028.
The calculations in the examples are illustrative. They are based on simplified assumptions (constant return, no inflation, no other deductions). Consult a tax adviser for your personal situation.