Family mortgage: smart wealth transfer for entrepreneurs

As a business owner, you are constantly looking for tax-efficient ways to manage your assets and transfer them to the next generation. An interesting tool that deserves attention in this process is the family mortgage. This financial product not only provides benefits for the transfer of wealth within the family, but can also provide significant tax advantages.

What is a Family Mortgage?

A family mortgage is a mortgage loan in which the parents (or other family members) act as lenders for a child who wants to buy a home. The interest paid by the child can be gifted back to the child by the parents, within the applicable gift tax exemptions. This makes it an attractive way to transfer assets while supporting the child to purchase their own home.

Fiscal Benefits

The interest paid by the child to the parents is income tax deductible, provided the loan meets the conditions for mortgage interest deduction. The parents' gift back of the interest can be tax-free, as long as it falls within the annual gift exemption. This leads to a win-win: the child can finance the home on favorable terms, while the parents can transfer their assets in a tax-friendly manner.

Recent Developments

It is important to note that the tax treatment of the family mortgage is subject to the interpretation of the Tax Office and recent tax changes. State Secretary of Finance Van Rij has indicated that the family bank construction is not considered an "undesirable tax construction," which means that no measures will be taken to address it for the time being.

Conclusion

The family mortgage offers a strategic option for wealth transfer within the family, with significant tax advantages. For business owners who want to support their children in financing a home while working on their estate planning, this is an option worth considering. However, it is essential to carefully plan the structure of the loan and ensure that it meets all tax requirements. As with all tax planning, it is advisable to seek professional advice to ensure that the family mortgage is used to its fullest potential.