A family mortgage
Helping your child buy a house
The possibilities and advantages and disadvantages of a family mortgage for both parent and child
Starters have it difficult on the housing market. The supply of affordable housing is limited and with a starting salary, lack of savings, but a student loan, you will not quickly qualify for a home. What can you as a parent to do your child to assist with financing, so that there is one after all first home purchase can be purchased? The possibilities and the advantages and disadvantages of a family mortgage for both you and your child at a glance.
Donate money
Nowadays donating money is aand a commonly used way to help children with financing of a house. By a donation need not you child to borrow less money from the bank or can the amount be used to outbid. For 2021, the maximum amount for a tax-free gift for purchasing a home has been set at € 105.302. The condition is that you child is between 18 and 40 years old.
If the liquid assets are there, a noble way to help your child. Money in a savings account yields almost nothing and because of the negative interest you even have to pay to save above a certain amount. Get well informed about the conditions.
Borrow money
With a family mortgage you can help your child as a parent to buy a (first) house. This loan-gift construction has advantages for both parent and child.
Your child borrows part of the purchase price from you as a parent. You agree on an interest rate for this together. This interest is tax deductible for you (under certain conditions). If you also donate (part of) the mortgage interest, this is not included in the calculation of the mortgage. For you, the claim falls in box 3, while for your child, interest deduction applies in box 1. As a parent, you pay less tax on the assets by investing them in your child's mortgage. In addition, you receive an interest that yields more than the current low savings interest rate.
It is important to know that your child will not receive a higher maximum mortgage through this construction. The bank will actually deduct the loan from your child's maximum mortgage. It is therefore possible that in some cases this construction will not help much for the mortgage amount to be borrowed.
The parents can give back the interest paid – annually up to €5,677 (amount in 2022) – tax-free. At the same time, the child can deduct the interest paid from their income tax return.
Curious about how this works exactly? We are happy to advise you.
Equity
Dear dand rising house prices, as a result of which starters correct hard to find a house be able to buy, have homeowners often a large surplus value. So when you as parent does not have the liquid assets to pay an amount to borrow or donate, but you do own a home, you can use that equity for a loan or donation to your child.
You can considering taking out a mortgage loan on you own home. Then can you thatto lend the amount to you child. You have then a debt (the additional mortgage loan) and a claim in box 3, which cancel each other out. You child receives a home loan, the interest of which is deductible. And if on the loan between both no mortgage security is established, can you set the interest rate higher than the interest that you as a parent payThis is fiscally beneficial due to the deductibility for you child. The by you interest margin received is tax-free and you can possibly donate the difference in interest rate back to the child.
A disadvantage of this can be that you own possibilities in the future limited. Or this, besides being beneficial for your child, so also for you in the long run Whether or not this is favorable depends on your future plans and further financial situation.
Second home or a wto donate
Should there enough financial space are, then kand you also think about a second home. This can you then donate or rent to you child. It buying a tweedand house can be a good investment. You pays wealth tax on a second home in box 3. The disadvantage for you is that the mortgage interest for a second home is not deductible.
You can donate a home to your child to serve as their own home. For you, it is fiscally more advantageous not to donate the home, but to transfer it against a claim. After all, the interest is deductible for your child in box 1 and in fact tax-free for you. You can then donate the interest to the child from year to year.
If you rent out the second home to your child, you can ensure that your child is entitled to housing benefit, depending on the amount of the rent. Bouvy Advies would be happy to tell you more about this.
What interest rate can you charge for a loan to your child through a family mortgage?
It is fiscally advantageous to set the interest rate as high as possible if the loan is used for a private home. The interest is deductible for the borrower in box 1 and tax-free for the lender in box 3. It would of course be great if you could charge a 'usurious interest rate'. With 12% interest on a loan of € 100,000, the borrower would pay € 7,098 net in interest in the 40.85% rate, while you would collect € 12,000, after which you can both share the spoils with a laugh. That is why the tax authorities have determined that a 'business interest rate' must be paid. But what is business?
In any case, you can ask for 1.25 times the current market interest rate for mortgages with the same term and risk without fiscal consequences. An interest rate of 6 percent is also defensible. That is the percentage that the Inheritance Tax Act uses. With the current interest rates, 6 percent works out best in most cases.
It is not clear in advance which interest rate is appropriate for a private home loan from the BV. Based on HR 5 February 1997, no. 32.037, BNB 1997/217, an interest rate equal to the deposit interest or savings interest that the BV can obtain from the bank must be used for borrowing from the BV, possibly increased by a risk premium. Such a low interest rate is generally not very favourable from a tax perspective when it comes to private home loans (deduction at a higher IB rate than the VPB rate). In practice, the mortgage interest rate of banks is used. The tax authorities do not make a fuss about this. The rates that you find on the internet are not the rates for top mortgages. In practice, you often have to deal with a situation in which the managing director has a mortgage loan from the bank and in addition one from his BV (top mortgage). In this case, the (first) security is usually assigned to the bank. This situation justifies a (much) higher interest rate for the loan of the BV. It is difficult to give any direction for this. One could think of 3% above the interest rate for non-top mortgages.
Update: 18-01-2022
It is not unusual for a high interest rate to be used for home loans within the family in combination with the return of part of that interest. In this case, 6% is applied, with the argument that this is the standard interest rate in the Inheritance Tax Act. We have received signals that the tax authorities do not agree with this. This is probably a result of HR 26 June 2020, ECLI:NL:HR:2020:1111, in which the interest rate used for a top mortgage without security was replaced by 4.5%, being the bank interest rate of 3% plus a surcharge of 1.5%.
Remember that mortgage rates have fallen dramatically over the past 20 years. At the beginning of this century, they were around 6%. They are now mostly below 2%. If you use 6% for a family mortgage 'out of habit', an adjustment is required.
Contact us for independent and tailor-made advice.
Together we will look for the most favorable financial solution for both you and your child.
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