Do you want to reduce your tax bill? You can do just that with solar panels

Anyone investing in the solar modules of a photovoltaic system benefits not only from a return of around 6 per cent after costs, generated by the solar energy produced. In addition to making a meaningful contribution to the environment, it is the substantial tax benefits for high-income earners that make such an investment so attractive. As early as the year before the actual purchase of the photovoltaic system, an investment allowance (IAB) amounting to 50 per cent of the estimated acquisition costs can be claimed for tax purposes. For example: a family has a taxable income of €210,000. They now intend to purchase a solar system for a purchase price of €200,000. Fifty per cent of this amounts to €100,000, which is then deducted from their taxable income in the year prior to the purchase of the system. This means that only €110,000 is now subject to tax, resulting in a substantial tax refund. Depending on creditworthiness and collateral, between 75 per cent and 100 per cent of the solar system’s purchase price can be financed at the current favourable interest rates.

Further special depreciation allowances and tax planning options are available

Up to 50 per cent of the estimated acquisition costs can be deducted as an investment allowance under Section 7g of the Income Tax Act to reduce tax liability. This is particularly advantageous if the taxpayer’s income is high in the year of the deduction. Following the purchase, further tax benefits are available in the form of an additional special depreciation allowance of up to 20 per cent, which can be spread over the current year or the following four years. The remaining value is depreciated over 20 years in accordance with standard depreciation rules.

A solar power station can be gifted to children or other people tax-free

As a separate commercial enterprise for the generation of electricity, the exemption rules may be applied when transferring ownership of this business as a gift. This makes it possible to gift and bequeath solar power stations free of inheritance tax.

The installation, technical aspects and maintenance of the solar power system are important, and the contracts must comply with all tax requirements

However, it is just as important to ensure that the economic framework, the technology of the solar installations and their maintenance guarantee long-term, trouble-free operation. Making an investment solely for the sake of tax benefits has never been a good decision. As an operator of photovoltaic systems, you are classified as a business owner for tax purposes, which is important for recognition under the IAB scheme. Unfortunately, many mistakes are made in practice here, which can end up proving costly. If the mistake is only noticed during a subsequent tax audit, it will be too late.

High returns without the need for equity capital

Provided the key figures are correct, as an investor you will need to invest little or no capital of your own thanks to the tax rebates. The loan will be repaid from the income generated by the solar panels in around 16–18 years, after which you will receive the full income for many years to come. You have leased the roof or open space on which the system is installed for 30 years and can then negotiate an extension with the owner. Your income may be guaranteed for 20 years under the EEG. Comprehensive insurance cover protects you against unforeseen risks. Do you know of any comparable investment opportunities with similar parameters?

Conclusion

Solar power stations offer you the chance to make a profitable and sound investment whilst doing something meaningful for our planet. This is only true, however, if you have the right partners. Added to this are the flexibility in structuring the investment and tax benefits through the investment allowance. Please feel free to get in touch and let’s see if and how you can benefit from these opportunities.