InsightsJanuary 12, 2021
Less tax by using your partner’s general tax credit
If you have a partner who has little to no income, it’s possible to split the income you get from your BV (private limited company) in such a way that the general tax credit is optimally used. This can lead to a financial advantage of €2,169.
General tax credit
The general tax credit is a discount on income tax and national insurance tax. As a result, you pay less tax. Everyone with a taxable income in the Netherlands is entitled to the general tax credit. How high this general tax credit is depends on your income. When your income goes up, the general tax credit goes down. The general tax credit can never be higher than the income tax and national insurance tax payable.
The general tax credit can be a maximum of €2,711 (for people who have not yet reached retirement age). This can be partly transferred to a spouse, but this is limited to an amount of €542. If your partner has no income, it’s therefore smarter to make sure that he/she does receive a taxable income. This allows you to use the maximum of €2,711 and provides a maximum benefit of €2,169.
How to take full advantage of the tax credit
To ensure that the general tax credit is used to the maximum, you must ensure that the partner with no income does receive his or her own income. There are a number of ways to do so:
Make your partner an employee of the BV.
Pay dividends from the BV and allocate these to your partner.
Allocate part of the income in box 3 to your partner.
Partner as employee
If your spouse starts working in your BV, he or she will earn a salary. The height is to be determined by the company. It also means that actual labour has to be performed in order to earn a salary. In addition, the work that is done needs to match the height of the salary. If you’re just looking to get tax benefits, this is of course a very cumbersome way of doing so.
Allocate dividends to partner
If you receive dividend payments from your BV, these are taxed in box 2. The rate of box 2 in 2020 is 26.25%. This means that you can use the full general tax credit with a payment of €11,000 in dividend.
For the income tax return, the income in box 2 can be split between the two partners. When you allocate the dividend payment to your partner and the withheld dividend tax to yourself, you can use the full tax credit. We’ll give you an example to illustrate this construction:
Over a dividend payment of €11,000, the BV first pays 15% dividend tax. You attribute this withheld dividend tax to yourself. You attribute the €11,000 to your partner without income. As mentioned, your partner still has to pay 26.25% tax over this. This equates to €2,888.
Because your partner's income is now higher than €2,711, the full tax credit can be reclaimed. As you can see this is a very simple method.
Allocate income from box 3 to your partner
You pay tax over your assets when these exceed a certain cap. In box 3, the income can also be split between both partners. This works in the same way as described for the allocation of dividends. But to arrive at an amount of tax payable that’s higher than the general tax credit of €2,711 you need to have a lot of capital (about €360,000). Of course, this is not something everyone can do.
These examples show that allocating dividend to your partner is the simplest way to make maximum use of the general tax credit.