Explained: the family bank
Would you like to help your child to finance a house? But or you not sure how best to approach this? Perhaps the family bank is worth considering! This article is devoted to the family bank. So read on!
What exactly is the family bank? If you look at the term, you’ll assume that it is to help out family members. This is partly true, but it does not necessarily have to be family. It is also possible to lend money to people who are not related at all.
Yet, the family bank is mainly used as a parent to lend money to your children, to help them finance a home.
What makes the family bank tax advantageous?
Actually, the family bank is a win-win situation. First, the interest is deductible for the child. On the other hand, it is advantageous for the parents, because they receive more interest than in a savings account, especially with the current low savings interest! To make the interest deductible, the loan must meet certain conditions:
The interest must be in line with the market
The loan must be repaid within 30 years
The conditions must be recorded in writing
How to determine the height of the interest?
Because the interest is deductible for the child and is not taxed in box 3, the family bank often calculates with a high-interest rate. But how high that interest may be is often a point of discussion. An earlier mentioned point is that the interest must be in line with the market. The tax authorities often accept a margin of 25%. So, if the bank charges an interest of 6%, you can calculate with a percentage of 7.5% within the family bank.
Do you use the family bank to finance your house? But do you also have a loan at a mortgage lender? It may be the case that you can borrow less at the mortgage lender. In other words: it is not the case that you can get too high financing for your house through the family bank!
We are happy to help!
Do you have questions about the family bank? Or do you have other tax-related questions? We are happy to help! Please contact us for a free introduction using our details mentioned below!