How can you help your (grand)child buy their own home?
Buying your own house is a big step, and rising house prices don't make it any easier. What's the best way to help your (grand)child buy their first home? Is it better to give them a loan or a gift?
Gifting
You can gift money in two ways:
- With an inter vivos gift via the bank (also called a 'pacte adjoint')
You transfer the sum from your account to the account of the beneficiary. In order to prove that is actually a gift and fulfil the necessary conditions, it's a good idea to draw up a supporting document, which is called a ‘pacte adjoint’. This then means that there is no gift or inheritance tax owed as long as you live for at least three years after the gift is given. If you die within three years, the beneficiary will have to pay inheritance tax (and a large amount at that). If you have registered a pacte adjoint, you will have to pay gift tax but there will be no inheritance tax to pay later.
- With a notarial deed
You will always have to pay gift tax but no inheritance tax.
The gift tax rate for movable assets such as money remains the same regardless of how much you gift, but does depend on who you gift to. The rate varies by region.
- In the Flemish Region and the Brussels-Capital Region
- Direct line heirs and partners: 3%
- In all other cases: 7%
- In the Walloon Region
- Direct line heirs and partners: 3.3%
- In all other cases: 5.5%
You can attach a number of different conditions and stipulations to a gift:
- Reversion clause: if the beneficiary dies before you, the gift will return to you without you having to pay inheritance tax.
If the money has been invested in property, then becoming a co-owner of the (family) home is not a desirable outcome. With a claim on the estate, you can get the gifted amount back. - Exclusion clause: the beneficiary may not share the gift. This means that if the beneficiary gets divorced, the ex-partner will not receive half of the gift.
Giving a loan
If you do not want to permanently and irrevocably give money to your (grand)child, you can also give them a loan. Whenever you lend money, it's always best to put it on paper in order to avoid later misunderstandings and discussions.
By using a loan agreement, you can determine the terms of the loan, such as the conditions of repayment and the interest due.
Should the beneficiary die before you, you will be able to make a claim on their estate for the outstanding balance of the loan.
You may wish to forgive the loan at a later date. This is then seen as a gift to which you may attach conditions.
When forgiving a loan, you have the same options as for a gift. Should you die and the loan has not been forgiven, the outstanding balance will still be included in your estate and will be subject to inheritance tax.
Buying a home with a partner
If your (grand)child buys a home together with their partner, they would be well advised to make proper arrangements in advance in case the relationship breaks down.
- If the recipient of your gift is married, the gift remains a part of their own assets, but this does not apply if they are married under the universal community of property regime, unless otherwise stipulated in the deed of gift. Usually, an exclusion clause is included in the deed of gift as an extra measure of protection (see above). In certain cases, the deed of purchase can include a declaration of reinvestment which makes it clear that part of the home remains the property of the recipient.
- Real estate can also be purchased with your own money and divided into unequal shares, which means that the couple do not own half each.
What about purchasing real estate yourself to give as a gift?
If you first purchase a property yourself and then give it as a gift, you'll usually end up worse off in terms of taxation. You'll not only have to pay the normal registration duties or VAT, but also the (progressive) gift tax on real estate.
Your (grand)child, on the other hand, will usually be able to benefit from reduced registration fees or a reduced VAT rate.
If you would like to first live in the home yourself for a number of years before giving it as a gift, then it's a good idea to buy it yourself. In certain cases, you may also be entitled to reduced registration fees or a reduced VAT rate. You can then decide to gift it later.
If you want to help someone purchase a property, speak to your estate advisor or notary public first so that you know you're making the right choice.