Helping your (grand)children to buy a home: what are the options?

Buying a first home has become very difficult for young house hunters without turning to their (grand)parents for help. What are the options?

240,000 euros for an apartment and 290,000 euros for a house: these are the median house prices in Belgium (2024). For people in their twenties and thirties, buying a home is no longer an obvious choice. House prices keep rising and interest rates are now much higher than they were a few years ago. To get a home loan today, you need to be able to present a significant amount of savings first.

Parents and/or grandparents who have more financial flexibility often play a decisive role. There are several ways to help their (grand)children get on the property ladder.

1. Loan to a (grand)child

It is perfectly possible for parents or grandparents to lend money to their (grand)children. They can do so in the form of an interest-free loan or a loan with interest. A loan can be a good option if the (grand)parents do not (yet) have the willingness or financial capacity to gift money.

The benefit for the younger generation is that the interest rate owed to their (grand)parents will very likely be lower than the bank’s rates. This is particularly the case now that interest rates are higher, meaning that calling on the bank of mum and dad (or granny and grandad) can appear very appealing.

As with a bank loan, a loan to family members is based on clear agreements. For amounts over 3,500 euros, there is a legal requirement to draw up a written agreement. This is not an unnecessary luxury, as there is always a possibility the relationship will turn sour or the (grand)parents will die. There is no limit on the amount that (grand)parents can lend.

What should the agreement include?

You can draw up the agreement yourself. The assistance of a notary is not required, although it certainly does not hurt to seek a notary's advice or to have the document notarised. The advantage of creating an agreement with a notary is that this immediately gives the (grand)parents an enforceable document, so they do not have to obtain a court judgement if the child fails to repay the loan. A notary can also advise the (grand)parents if the child has a partner and the (grand)parents want that partner to be jointly responsible for repaying the loan.

The agreement should always include the following information:

• Name and address of the parties
• The borrowed amount in digits and written out in full
• Confirmation from the borrower that they have received the borrowed amount
• The loan term (without a term, the creditor can claim back the money at any time!)
• The interest rate and possibly any late payment interest
• A clause stating that the money loaned is payable immediately in the event of default
• Payment instructions
• The reason for the loan (purchase of a property) – otherwise, the child can spend the money at their own discretion
• The number of copies in which the agreement has been drawn up
• Place and date of signature. The name and signature must be handwritten

Repayments are best made by bank transfer. This gives both parties proof of payment. The repayments can also be made in cash, but in that case the (grand)parents should always draw up a receipt.

Good to know: if interest is due, the (grand)parents are required to pay a 30% withholding tax on the interest received. The (grand)parents must declare this in their personal income tax. If the loan is interest-free, no withholding tax is payable.

Cancelling the debt

(Grand)parents can decide to cancel the remaining debt at any time. In that case, the remaining balance is regarded as a gift. There are two ways of cancelling the debt/gifting the money: you can do so with a notarised deed or with a private deed that does not require the involvement of a notary (see below).

(Grand)parents can also cancel the debt in their will. Please note that in this case, the remaining balance will be included in the inheritance and will be subject to inheritance tax. Suppose that the (grand)parents have died and the child still has to repay 50,000 euros. In that case, those 50,000 euros will be included in the estate, and the child will pay inheritance tax on them.

2. Gift to a child

A gift means that the parents give the child a sum without expecting it to be paid back. It is important to know that a gift is generally irreversible and therefore cannot be undone. The money can only be recovered in very exceptional cases. If you want more control, you can of course put certain conditions on the gift.

There are two ways to gift money: by notarised deed or by bank transfer.

• A gift by bank transfer. This means you are transferring the money to the child’s bank account. You will not have to pay any gift tax on this amount, and you will not have to involve a notary. However, if the person gifting the money dies within three years (Flanders) or five years (Brussels or Wallonia) of the gift, the beneficiary will still need to pay inheritance tax on the gift.

Do not mention that the payment is a gift on the bank transfer. This would breach the formal requirements and may cause the gift to be considered null and void!

If you gift money by bank transfer, you need to draw up a ‘pacte adjoint' or deed of gift. In this document, the person gifting the money declares that they have gifted the money and the person receiving the gift declares that they have accepted the gift and any terms and conditions. It is important to write the entire deed of gift in the past tense. Keep this document and the account statement in a safe place, as the tax authorities may request it if the person gifting the money dies.

• A gift by notarised deed.

The notary draws up and registers a deed for your gift. In this case, the gift is subject to gift tax: 3% in Flanders and Brussels and 3.3% in Wallonia. A major advantage is that in this case, inheritance tax is generally no longer due if the person gifting the money dies within three or five years. Good to know: the gift tax is always less than the inheritance tax. Anyone who wants to play it safe should therefore go with a notarised deed of gift. If you paid the gift by bank transfer, you can still have it registered later if you want (and pay gift tax on it).

If you have several children, you should be aware of the so-called reserve. Once you shuffle off this mortal coil, in Belgium all your children together are always entitled to half of your estate (each receiving an equal share). Money gifted during your lifetime will be settled in your estate. If the gift favours some children over others, the children who are at a disadvantage may claim some of the higher amount received by the other child or children.

3. For grandchildren: contribution to a third party

Grandparents can also gift money directly to their grandchildren (although they also have to take into account the reserve: they cannot simply cut out their children). If grandparents want to give a grandchild a helping hand, this can be a particularly sensitive endeavour if there are several grandchildren or if the grandparents' children do not all have the same number of children. This can cause tension between the different family branches. To keep things equal between all branches, grandparents can gift money by making a 'contribution to a third party'. In that case, the money they gifted to the grandchild will be deducted from the inheritance of the grandchild’s parent in the event of the grandparents' death (see below for an example).

In order to do this, the parties involved must have a succession agreement drawn up by a notary. In such an agreement, the parent of the grandchild receiving the gift agrees that the gift of the grandparents to the grandchild will be deducted from the parent’s inheritance. The gift to the grandchild is then deducted from the inheritance of their parent. The gift is subject to gift tax (3% or 3.3%), but this arrangement ensures that no conflict will arise between the children because one grandchild is favoured over another child/grandchild.

Suppose you have two daughters: Melanie and Heidi. Melanie has two children and Heidi has one. As a grandparent, you want to gift 50,000 euros to Heidi’s only child, but you do not want to gift anything to Melanie’s children. Melanie’s children are 18 and 19 years old and have no idea yet “what they really want in life”. Heidi’s child is 27 years old. She wants to buy an apartment and could use some support. If you gift 50,000 euros to Heidi’s child, you disrupt the equality between Melanie and Heidi. However, if you make a 'contribution to a third party', you can gift money to Heidi’s child and still observe the equality rule. That is because Heidi will give up 50,000 euros of her inheritance in the event of your death. That way, Melanie (and therefore also indirectly her two children) will get 50,000 euros more than Heidi.

Are the (grand)parents on board already?

Next step: a home loan