Loan between relatives for the purchase of a house
September 30, 2014 | 25,00 EUR | answered by Ralph J. Schnaars
We will buy a currently rented house for 460,000 € and declare own use as soon as possible. The current interest rate at the bank is 2.5%.
My parents will provide us with a private loan of 50,000 € as "equity" at 2% interest with annual calculation; the repayment is due within 10 years at the latest, repayments are possible at any time. If no repayment is made, the amount will be deducted from the inheritance later. There is a private loan agreement regarding this.
Furthermore, my brother will lend us 25,000 € as "equity" - interest-free. The repayment will be made over the next 10 years @ 216 € / month into a fund in the name of the brother, with good interest. In return, the brother wants the option to move into the granny flat as soon as possible and potentially rent it at a discounted rate.
How should we contractually structure the above payments to minimize gift tax implications?
Dear inquirer,
Drafting contracts is only part of the tasks of a tax advisor in certain situations, as this activity is actually reserved by law for lawyers and notaries.
Therefore, I cannot provide you with the complete contracts here, but can only point out some key aspects.
When it comes to the loan from your parents, you should agree on "arm's length" conditions - just like with a bank. These include the term, interest rate, repayment terms, and securities. And if you make payments, you can deduct the interest from your rental income for tax purposes, creating your own in-house "tax saving model". However, it is important that the loan is treated as if it were between unrelated parties.
If this is not desired and it is actually just a "help" from your parents, the amount of EUR 50,000 could also be treated as a "pre-inherited" gift and therefore not be considered for tax purposes. Parents can gift their children a total of EUR 400,000 within a 10-year period without inheritance or gift tax consequences.
I see no issues with the loan from your brother, as it involves repayments. The fact that the repayment, at your brother's request, goes into a fund is irrelevant. The later desired discounted rent would not be necessary anymore.
And just for completeness, it should be mentioned that the tax-free allowance for gifts between siblings is EUR 20,000.
I hope I could assist you in your considerations and remain
Sincerely,
Ralph J. Schnaars
STWB Tax Consultancy GmbH
Direct contact +49 (0)171 525 20 42
Email mail@stwb-steuer.de
