Helping your child buy a home with a family mortgage

You can lend or give money to your child. If you lend your child money, they must pay you interest. Gifting money is more effective, as it increases your child’s capital and reduces their housing expenses. But it also means that you’ve ‘lost’ the money. A combination of both options is also possible, i.e. you lend your child the money and then gradually write off the loan. If you’re combining a loan from you with one from the bank, the two need to be properly coordinated. Below, I’ll discuss the various ways in which you can support your child financially.

A family mortgage is a loan from a parent to a child for the purchase of a home. In the Netherlands, family mortgages totalling approximately €70 billion have been granted. In most cases, it’s a supplementary loan. 50% of family mortgages are for less than 20% of the total mortgage amount.

The Dutch Tax Administration stipulates that the interest rate agreed on must be in line with market conditions. This means that the interest rate must be equivalent to the rate your child would pay at a bank or another financial institution. The Dutch Tax Administration has drawn up a number of examples to illustrate this. This shows that a small interest rate mark-up is permitted if there is no mortgage lien. You’ll find these on the Dutch Tax Administration website. The tax deduction rate for your child is capped at approximately 37.5%. Could it therefore be beneficial to set the interest rate higher and give the extra interest to your child? Even if your child exceeds the gift tax allowance and has to pay 10% gift tax? Yes, that could be beneficial. But it’s not permitted if it means that the interest rate is not in line with market rates.

An interest rate that is set too high may encounter the following problems:

• Your child won’t be able to deduct the portion that does not reflect market rates from their income on their tax return.
• For you, the family mortgage is an asset that you have to declare in box 3 of your tax return (or under the private limited company if the loan was provided by the company). If the interest rate is set too high, the claim may end up being higher than the nominal value of the loan.
• This may constitute a gift from your child to you. Within the family, it might be easy to agree on an interest rate that’s too high. However, in the event of a correction, this could have serious adverse consequences.

You can view a family mortgage as an investment. Suppose the interest rate you have set for the family mortgage is in line with market rates and is 4%. Where do you get the money from to provide this family mortgage? If you sell an investment that yields less than the 4% interest on the family mortgage, you’re better off with the family mortgage. The same may apply if you withdraw money from a savings account to provide the family mortgage.

As far as your child is concerned, it makes no difference whether the interest rate is 4% at the bank or on a family mortgage.

The family mortgage is classified as an asset that you must declare in box 3 of your tax return. It’s hard to say in advance how much tax you will have to pay in box 3. In principle, the Dutch Tax Administration bases its calculations on an assumed (notional) rate of return. Your ‘bank balances’ and ‘investments and other assets’ will also be treated differently. A family loan is classified under ‘other assets’ and subject to an assumed rate of return of 6% in 2026 (reference date: 1 January 2026). If your actual return is lower than that, the rebuttal scheme for taxation according to actual return applies. All things considered, this should mean that you pay 36% tax on the actual interest (for example, 4%). However, the actual return must be calculated on the basis of your total box 3 assets, without taking the tax-free allowance into account.

Box 3 was a source of frustration for many people, as the overall tax rate was relatively high at lower returns. The rebuttal scheme has taken the sting out of it. It doesn’t always work out perfectly though. However, in most cases, taxation in box 3 is no longer an obstacle to a family mortgage.

Example

You’ve granted a family loan at an interest rate of 3%. In 2026, it’s assumed that you’ll achieve a return of 6%. This results in a high tax rate of approximately 2.16% on the loan amount. Under the rebuttal scheme, you may use the real interest rate of 3%. As a result, the actual return may be lower than the assumed return. However, you’ll need to calculate the actual rate of return over your total assets. Whether you actually pay less tax therefore depends on the situation. However, the fact that the lower interest rate is factored into the calculation may be reassuring.

Are you granting the loan through your private limited company? The question then is whether the family mortgage is a good investment for your private limited company. Are there alternative investment options that offer a higher return than 4%? If there are, the private limited company would effectively miss out on returns by granting a family mortgage. Conversely, your private limited company will benefit if alternative investment opportunities yield a return of less than 4%.

In the past, a family mortgage offered a significant tax benefit. This is no longer the case. The interest deduction for your child is now capped at 37.5%. Assets declared in box 3 of the tax return are subject to a tax rate of 36%. And for a private limited company, the effective tax rate is at least 38.8% (a combination of 19% corporation tax and 24.5% tax in box 2). So there’s no longer any significant tax benefit these days. In the case of a loan taken out through a private limited company, there’s even a (limited) tax disadvantage.

Suppose you want to help not only with a family mortgage but also with the housing costs. You can do this by making an annual gift, for example, up to the amount of the annual gift tax allowance (€6,908 in 2026).

Another option is to write off the loan. Your child will then no longer have to repay part of the loan to you. This saves your child interest and repayments now and they will probably have to pay less inheritance tax when you die. Writing off the debt can also make your situation clearer.

In short, if you want to help your child, don’t need the interest for your income, and don’t need the money back either, writing off the loan is worth considering.

When granting a mortgage, a professional lender must guard against over-lending. The lender will assess your child’s overall financial position. A family mortgage reduces how much the lender can lend, unless additional measures are taken, such as a commitment on your part to gift the annual repayment and interest obligation on the family loan to your child.

Example
Your child has a borrowing capacity of €400,000 and wants to buy a property for €500,000. You want to lend your child the missing €100,000. However, the bank may then only lend your child €300,000. This may be different if you commit to making gifts so that your child has no charges from the family mortgage. Discuss these two scenarios in detail with a tax adviser. The first question is whether pledges to gift your child money will result in a single large gift or in annual gifts. The second is whether the interest is actually borne by your child and is, therefore, tax-deductible. This needs to be assessed on a case-by-case basis. If you’re providing the entire loan for the purchase of the property, you don’t need to carry out an over-lending assessment. However, when combined with pledges of gifts, the question may arise as to whether the interest is borne entirely by your child (and may, therefore, not be fully tax-deductible).

Until 2022, gifting money to your child was encouraged by means of an additional gift tax exemption, known as the ‘jubelton’. This scheme made sense during the years when many people found themselves in ‘underwater’ situations, i.e. when their mortgage debt exceeded the value of their home. However, the housing market has changed since then, and there is greater focus on wealth inequality, and so the ‘jubelton’ tax exemption has been abolished. What exemptions are still in place? In 2026, there will be a general increased gift tax exemption of €33,129 for children aged between 18 and 39 inclusive. This is a one-off increase in the annual exemption for children.

In many situations, this increased tax-free gift will be enough to help your child buy a home. Any gift exceeding the exemption limit is subject to 10% gift tax on the excess amount. What are the options for avoiding this gift tax?

• There is an annual gift tax exemption of €6,908 (in 2026). If you make use of this every year, you will have gifted €100,000 after approximately 13 years, based on a return of 2%. For young children, you could consider a gift under administration. This way, you can prevent your child from spending the savings on something else when they turn 18.
• No time to build up capital using the annual gift tax exemption? One option might be to grant a loan that is written off in stages. This means lending your child €100,000 and reducing this loan each year by the amount of the gift tax exemption. Your child will then have €100,000 available straight away, and the debt will be written off over time, without any gift tax being payable. If the net interest rate is 3% and the gift is used to pay this interest, with the remainder going towards the capital repayment, the debt will have been paid off after about 20 years.

As you can see, saving up in advance works out more favourably than borrowing and having the debt written off.

Many parents want to help their children buy a home. This can be done by gifting money or granting a family loan. Gifting is more straightforward and if you start early enough, you can build up a handsome tax-free amount. With a family loan, pay close attention to the terms and conditions and set the interest rate correctly. If you’re combining a family loan with a bank loan, these need to be carefully coordinated. Nowadays, a family loan no longer automatically means a tax benefit. Mission accomplished? Helped your child buy a home? Perhaps you also want to help your child with their housing costs by gifting them money. With a family mortgage, you can choose to write off the loan for your child in stages.

Of course, gifts must be right for your situation, because it means you’ll no longer have that money and won’t be earning a return on it either. So don’t just look at your child’s situation, but also at your own situation. Buying a home in 2026 is often rightly a ‘family affair’.