Taking out a family mortgage?
I am happy to help you arrange a family mortgage, specially tailored to you and your child.
Taking out a family mortgage?
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.
Want to know more?
Donate money
Nowadays, donating money is a common way to help children finance a home. A donation means your child doesn't have to borrow as much money from the bank or the amount can be used to outbid. For 2021, the maximum amount for a tax-free donation for buying a home has been set at €105,302. The condition is that your child is between 18 and 40 years old. If the liquid assets are there, a noble way to help your child. After all, money in a savings account yields virtually nothing and due to the negative interest, you even have to pay to save above a certain amount. Make sure you are 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
You may consider taking out a mortgage loan on your own home. You can then lend that amount to your child. You then have a debt (the additional mortgage loan) and a claim in box 3, which cancel each other out. Your child receives a home loan, the interest of which is deductible. And if no mortgage security is established on the loan between the two, you can set the interest higher than the interest that you pay as a parent. This is fiscally advantageous because of the deductibility for your child. The interest margin that you receive is tax-free and you can possibly donate the interest difference to the child.
A disadvantage of this can be that you limit your own possibilities in the future. Whether this is beneficial for you in the long term, in addition to being beneficial for your child, depends on your future plans and further financial situation.
Donating a second home or a home
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.
Independent and tailor-made advice
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