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Home financing

You are about to purchase a home. There are different ways to finance the purchase of a new home. This can be done from your own money, through a bank, but also via a loan from your BV [Dutch Private Limited Company]. And in which box do you place it? Credit Specialist Martje Goos explains how she informs customers about this.

 

In a discussion with the Private Banker, asset structurer and mortgage specialist, the best combination can be examined. For now and in the future. Your wishes are discussed with regards to, for example, savings or money in a holding company. Could you perhaps make an investment that yields a higher return than the current bank mortgage interest rate? Is it then wise to borrow as much as possible from the bank or to use some of your own money so that the interest on the bank loan also becomes appealing?

Box 3 financing against your own home

Where confusion sometimes arises with the standard home mortgage is the expenditure purpose. The starting point is of course the purchase or renovation of your own home or the refinancing of the home acquisition debt elsewhere. However, your own home can also serve as collateral for a Box 3 loan for other purposes*. For example, for real estate use, such as a holiday home or home abroad. It is also possible to help your children with the purchase of a home.

* There may be restrictions under the policy (for example, max. term 10 or 15 years instead of 30 years in some cases)

Helping your children get started

If parents take out a mortgage on the home, it can be lent to the child. Once the child has sufficient income, this can then be refinanced through the bank. The return that the wealthy parent receives on their savings is currently zero. Lending to children at, for example, 3% interest is therefore beneficial. For example, there is the construction whereby the children pay a slightly higher interest rate than the bank interest rate, with the advantage of a higher interest deduction. The parent then gifts an amount back to the child each year within the maximum exemption. In this way, the child ultimately pays an interest rate equal to the bank interest rate, but has a higher tax benefit.

Be careful when helping your children get started

Parents and children must agree on monthly costs that the child can afford. A (partial) gift may be a better option for the child. I would also point out that taking out a mortgage with the children comes with certain risks because it is a long-term agreement. Bear these kinds of issues in mind.

Paying off BV debt

What is also increasingly playing a role at the moment is the excessive borrowing law. There are many cases, especially of business owners, who have borrowed from their own company from a tax perspective. From 2023, the excessive borrowing law will come into effect and the maximum debt owed to the company may only amount to EUR 700,000. A higher loan leads to a fictitious dividend, resulting in a tax bill for the business owner. Many business owners are now looking for bank financing to pay off their company debts. Your own home can also serve this purpose. For this too, always seek advice from a tax specialist.

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