If it is no longer possible to claim depreciation on a property, it is sometimes better to transfer it to your private assets. When is this the case, and what are the benefits?
Depreciation is limited
For a number of years now, business owners have been subject to restrictions on depreciation. For a property not held as an investment, depreciation is limited to 50% of the WOZ value. For investment properties, depreciation is limited to the WOZ value itself.
Move to private?
In some cases, transferring the property from the private limited company to a private individual may offer a solution. This must be done at fair market value. The difference between that value and the book value is taxed as a capital gain for the private limited company. In principle, the company must pay corporation tax on this at a rate of 20% to 25%, but this would have been due in any case. Payment may be deferred if another property is repurchased (reinvestment reserve). The private limited company may then deduct the capital gain from the book value of the new property.
Letting to a private limited company
If your private limited company does not buy back the property, or if you need an additional property, you can let the property back to your private limited company. The rent is tax-deductible for the company and is taxed as part of your personal income in Box 1. However, you may first deduct all costs from the rent received. This includes depreciation costs, as you can continue to depreciate the property’s purchase value up to 50% of the WOZ value. Furthermore, 12% of the net income is exempt for you (exemption for making property available).
Tip: This arrangement may be particularly attractive if the private limited company has losses to carry forward, especially if these are at risk of being lost.
Please note! One drawback is that transfer tax must be paid on the sale value. For commercial properties that can be classified as residential, as is often the case in the financial services sector, this tax amounts to just 2%. In other cases, it is 6%.
Make sure you seek sound advice if you are considering transferring a property to your private name.