Are you a parent and would you like to help your child financially? Which parent does not want to support his child financially, for example when buying a house, booking a holiday or arranging a wedding…. As a parent you cannot just give your child a large amount of money. The tax authorities see this as a gift. And then you have to pay gift tax. You can, however, provide a loan to your child. Lending money to children is subject to tax rules. You can read more about this below.
Lending money to children, how does it work?
If you want to lend money to your child (ren), you will have to deal with a number of tax rules. For example, you are obliged to charge a market interest rate. Of course that goes against your nature. Because who wants to earn from their own children? Nevertheless, the Tax and Customs Administration has set rules for everyone who lends money.
Legally required interest
How much interest should you charge for a loan to your child? The website of the Tax and Customs Administration states that it must be a market-based interest rate. In 2017 this must therefore be at least six percent. Elderly people who lend money to their children and charge little or no interest for it, who may have problems with the tax authorities. Because then the loan is seen as a gift. And the parent must pay gift tax on the amount of money borrowed.
Child may deduct interest from income tax
Do you want to lend money to your child to buy a house with? Children can deduct the interest on a loan that is used for the purchase, renovation or renovation of a home from income tax in box 1. Please note: the loan must then be repaid within thirty years. And that has to be done in a linear or annular way. The bottom line is that a loan at an interest rate of 6% can still be a fairly cheap way of borrowing. And as a parent you are of course always free to donate the interest you receive as a gift. You may donate a certain amount tax-free annually.
Register contract with the tax authorities
Don’t forget to register the loan you give to your child with the tax authorities. You only need to do this if your child uses the money for his or her home.