Photovoltaics · 4 min read

IAB and photovoltaics: how to invest your severance pay optimally

This guide refers to German law and the German tax system. It is a translation of our German original and does not replace individual tax or legal advice.

At first glance, the topics of the Investitionsabzugsbetrag (IAB, investment deduction) and photovoltaic systems give no hint of the potential this combination holds for private individuals. Employees who have received severance pay in particular can benefit from photovoltaic systems if the advantages of the IAB are structured and taken into account optimally in their income tax. To this end, we present the key features of the IAB and explain how we support clients in saving tax with the investment deduction (IAB). If you are about to receive severance pay or have already received it, this article is aimed precisely at you and your situation.

As experts in investment strategies, we have focused, among other things, on the tax optimisation of severance pay and on saving tax through IAB investments. To do this, we work with partners and with our clients' tax advisers to convert your severance pay into private wealth in a tax-optimised way. Among other things, we rely on sustainable, high-yield photovoltaic investments, which diversify your risk from other asset classes well. Secure a no-obligation consultation with one of our experts on the topics of the IAB, photovoltaic systems and severance pay.

The IAB and the PV system: a tax structure for private individuals

The investment deduction (IAB) is a German tax instrument that can enable you to reduce your tax burden if you have a high income. This involves investing before tax in eligible business assets, which lowers your taxable income by the amount of your investment. The classic PV system is one such business asset, and it already affects your taxable profit at the time of purchase. While the costs of a PV system are taken into account in the year of purchase, the system passes into your private wealth over several years. In addition, income can be generated by producing electricity, which continues as a "solar pension" even beyond the depreciation period. The legislator has created clear guidelines for qualifying eligible business assets. Within these, PV systems are ideally suited for investing severance pay in a tax-optimised way, for example. Funds for purchasing a PV system can be raised, among other things, from the tax savings in the year of purchase. Conventional approaches such as standard taxation or the one-fifth rule (Fünftelregelung) therefore fall far short of the possibilities offered by a future-proof investment combined with the IAB. Solar direct investments are often planned as soon as the employer announces a severance payment. So contact us in good time to get the best advice on how to proceed.

PV systems for optimal retirement provision as a private household

A widespread form of private retirement provision is the classic purchase of property and its depreciation over several years. However, when pre-tax investment capital becomes available all at once, taxes are usually paid blindly, which reduces the investment sum of many private investors. For private households, a direct investment in PV systems, compared with property, offers an opportunity to reduce the tax burden before it is paid. This corresponds to more predictable depreciation than, for example, listed buildings (Denkmal-Immobilien), which are largely tied to future income. Anyone who wants to save tax and expand their retirement provision by using the IAB for PV systems has an ideal opportunity to do so with classic PV systems. Under Section 7g of the German Income Tax Act (EStG), the purchase of PV systems qualifies for an investment deduction in the same year. This IAB is taken into account in your tax return and claimed alongside the severance payment or other income. But what happens with years that have already passed? In this case, it depends on when you formed the intention to invest in a solar installation. If the severance payment and the intention to purchase fall within the same period, the same advantages can be used for your income tax. We will present the requirements for a tax saving as well as the entitlement and the investment costs to you individually in a no-obligation initial consultation.

Neo Capital GmbH – smart investment strategies with the IAB and PV investments

Anyone currently expecting a taxable severance payment should seek advice on the IAB options in advance. Often an intention to invest is enough to benefit from the first tax advantages of an IAB investment in PV systems. It does not matter whether you have already invested in other assets or whether a PV system is your first step towards tax optimisation: the pre-tax IAB investment pays off in almost all cases. Our clients benefit from our network of experts and tax advisers who are thoroughly familiar with the investment deduction (IAB). Above all, the aim is to reduce your overall tax burden over the long term rather than simply deferring taxes into the future.

As independent advisers for reputable investment options, our goal is to turn tax-saving models into reality together with our clients. To do this, we advise you comprehensively and, if you wish, work closely with your tax adviser to convert taxes into private wealth over the long term. Are you planning to use your severance pay to finance the purchase of IAB-eligible business assets? We will be happy to accompany you on this path and advise you on your individual situation without obligation. So write to us and put your questions to one of our experts free of charge.