Top 10 year-end tips
It has been an extraordinary year. As an entrepreneur, there is a good chance that this year, more than ever before, you could benefit from some useful tax-related and other year-end tips. We have picked out ten for you here.
1. Make the most of the possibilities under the work-related expenses scheme
The fixed budget under the work-related expenses scheme (WKR) has been expanded this year. Up to a wage bill of € 400,000 the fixed budget amounts to 3%, with 1.2% applying to the excess amount. Assess the fixed budget you have remaining and make full use of it. Be sure to take advantage of the cost-efficiency threshold of € 2,400 per person per year. Up to this amount the Tax and Customs Administration will regard any allowances and benefits in kind granted as customary allowances and benefits. Only make use of the group scheme under the work-related expenses scheme if this will work out in your favor. As the fixed budget has been increased, this is less often the case than it was last year.
2. Disband your tax group
If your companies currently form part of a tax group, it may be beneficial to disband it. The tax group pays corporation tax on the combined profits of all the companies. In view of the increasing gap between the lower and higher rates of corporation tax, disbanding a tax group is becoming a more attractive option. From 2021, after all, there will be a difference of 10 percentage points between the rate in the first band and the higher rate (15% and 25% respectively). The lower rate will apply to the first € 245,000 of profits from 2021 and even to the first € 395,000 of profits from 2022.
3. Bring forward purchases of commercial property
If you purchase a commercial property, this year you will owe transfer tax at a rate of 6%. This rate will increase to 8% from 2021. We therefore recommended that, if possible, you complete a planned purchase of a commercial property before 2021.
4. Avoid high tax in box 3
As an entrepreneur, you are best off waiting until after 31 December to transfer liquid assets that generate low returns, such as cash in your business bank account, to your private assets. In this way you will avoid the relatively high tax in box 3. Conversely, it makes sense to transfer any necessary cash from your private assets to your business account before 31 December this year.
As a private individual, you can avoid the high rate of tax that applies in box 3, in particular to savings, by setting up a ‘savings company’ (‘spaar-bv’) or a mutual fund. You will then pay around 38% tax on the return actually received up to € 245,000. This is considerably less than the 0.59% to 1.76% tax that you will pay on your savings balances in box 3 in 2021, although you need to bear in mind that the exempted income in box 3 is being increased to € 50,000 per person in 2021.
5. Pay out a dividend this year
The rate of tax on substantial shareholdings (box 2) will be increasing from 26.25% to 26.9% in 2021. It may therefore be worthwhile to have any dividend paid out before 2021, if this payment will be used for spending or to pay off an excessive loan from your company. If you will not be using the dividend for one of these purposes, it will form part of your private assets and will be taxed in box 3. Whether this option is attractive depends, amongst other things, on whether you have savings or investments in box 3, what return is achieved and how much tax you are paying on it.
6. Wait until after 2020 to buy your (first) home
From 1 January 2021 young people between the ages of 18 and 34 will be exempt from transfer tax when buying their own home. As of 1 April 2021 this exemption will only apply to homes with a value up to € 400,000. This is a one-off exemption, which means that if young persons within this category have already bought a home, they will still be entitled to the exemption if they buy another home. After all, they will not have previously made use of the exemption. One condition here is that they will live in the home themselves as their main place of residence. The exemption will result in a 2% saving in transfer tax.
7. Buy an electric car before 2021
If you are an entrepreneur and are planning to buy an electric car in the near future, it is advisable to do so before the end of 2020. That is because, from 2021, the 8% addition to taxable income for electric cars will be increasing to 12%. Furthermore, this 12% addition will apply only to the first € 40,000 of the list price instead of the first € 45,000, as is currently the case. A rate of 22% will be payable on the excess amount. The lower rate of the addition will apply for a period of 60 months from the date on which the vehicle first enters use.
8. Reduce your customary salary by taking your car and expense allowances into account
As a director/major shareholder (DGA), you are entitled to deduct expense allowances from your customary salary. It makes no difference whether these expense allowances are taxed or untaxed. The addition to taxable income for private use of a company car also counts towards your customary salary. In the case of a car costing € 60,000 and an addition to taxable income of 22%, for example, you can therefore reduce your customary salary by € 13,200. As a DGA, reducing your customary salary means you will pay less tax in box 1.
9. Optimize the small projects investment allowance
If you make investments, in principle you are entitled to the small projects investment allowance (KIA). Planning your investments and, where possible, spreading them out is often worth the effort. For example, investing € 50,000 in 2020 and 2021 results in a KIA of € 28,000, while investing € 100,000 in 2020 and € 0 in 2021 entitles you to a KIA of just € 16,307. It is therefore worth getting the right advice if you want to take advantage of the KIA.
10. Make a tax-free gift again this year
This year you can once again take advantage of the exemptions from gift tax. In 2020 you can make a tax-free gift of € 5,515 to your children and of € 2,208 to your grandchildren or third parties. For children between the ages of 18 and 40 this amount has also been increased this year on a one-off basis to:
- € 26,457
- € 55,114 if the amount is used to fund a course of study
- € 103,643 if the amount is used to buy a home
The one-off donation of € 103,643 to buy a home also applies to persons other than your own children. If you make a gift in 2020, your assets in box 3 will fall, which can result in tax savings for you.
Please note: As a result of the coronavirus crisis, both the exemption for children and the exemption for grandchildren and third parties will be subject to a one-off increase of € 1,000 in 2021. The exemption will therefore amount to € 6,604 for gifts to children and € 3,244 for gifts to grandchildren and third parties in 2021. This increase will be reversed in 2022.