Is it still beneficial to take out a mortgage from your own BV (limited liability company)?

‍One of the biggest advantages of operating through a BV is often said to be that you can use the savings in your BV to grant yourself a mortgage. This is certainly true and can be very interesting. But is it the best option?

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‍Buying a house with BV savings

‍When you have built up savings in your BV, you can use them to buy your home. In principle, there are three options to do this:• Paying dividends: You pay dividends to yourself from the BV. The advantage of this is that you can buy the house without a loan. Disadvantages include paying dividend tax (26.9%) on the distributed savings, which means you have less at your disposal, and you cannot benefit from mortgage interest deduction.• Buying the house through the BV: In this case, the BV buys the property and rents it out to the DGA (director and major shareholder).

The advantage is that there is no dividend tax withheld on the savings. Disadvantages include the fact that the property does not become the DGA’s own property and, if the property has increased in value upon sale, corporate tax will be payable on it.• Borrowing money from the BV: The last and most common option is to borrow money from the BV to buy a private home. The advantage is that you can claim mortgage interest deduction on the interest paid, but you are actually paying the interest to your own BV.Requirements for a mortgage from your own BVWhen borrowing money from your own BV to finance a house, it must be a genuine loan.

The loan must have been taken out under such conditions that any third party would also have taken out the same loan. Conditions that you can think of include:• Fixed repayment schedule• Business interest rate• Security measures in case of non-paymentIf these conditions are not met, it can have unpleasant consequences. For example, if a loan has too low an interest rate, the benefit that the DGA receives from it can be classified as a dividend, on which dividend tax must be paid. This can even go so far as to consider the entire loan as a dividend payment.In addition, the new law on excessive borrowing plays an important role. In short, this law regulates that debts of the DGA to the BV over €700,000 are classified as dividends. There is an exception for mortgage loans, but a loan for a private home is not always a mortgage loan. Therefore, it is very important to document the loan in the correct way.

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Is it beneficial to take out a mortgage from your own BV?‍

The current low interest rates make it difficult for directors of private limited companies (DGA’s) to earn a decent return on the savings of their companies. As a result, many DGAs are considering using this money in other ways, such as lending it to themselves to buy a home. This was very interesting because they could deduct mortgage interest against a higher tax rate than the interest they received was effectively taxed at the BV. This can make up to 7% difference. You will understand that this construction was very interesting.In recent years, the combined rate of corporate tax and personal income tax in box 2 has changed, and the mortgage interest deduction has been limited, largely eliminating this advantage.

From 2023, the tax burden in the BV (37.87%) will even be higher than the mortgage interest deduction (37.05%). This suddenly makes having a mortgage with your own BV much less interesting.Another consideration in deciding whether to borrow money from your own BV or from a bank is the expected return on investment for the BV’s assets. When you borrow money from your own BV and use it for your home, you no longer have access to the liquid assets. If you get the same financing from a bank, you can still keep the money in the BV’s account and invest it, for example, in stocks.From a financial point of view, the question you need to ask yourself is whether the interest you pay to a bank is higher than the expected return on investment for the BV’s assets. If the interest rate is higher than the expected return, it is advantageous to borrow from the BV. If it is the other way around, it is better to borrow from the bank. Taxes should also be included in the calculation. I can help you with this.Of course, the above has been viewed through a purely financial lens.

Other factors, such as choosing more security by borrowing from your own BV, can also play a role.The conclusion is that it may still be interesting to take out a mortgage for the purchase of your own home from your own BV. However, it is now much less fiscally advantageous than it used to be. Therefore, always seek advice on the different options and make your decision based on this information.