Gifts to children

One can donate to children because one enjoys actually giving something to the children. It is also possible to donate to children without actually paying out the amount donated, with the intention of:

1. have less inheritance tax (formerly also called: inheritance tax) owed after death;
2. secure assets in case of admission to a nursing home, etc.

Gift tax rates and exemptions (year 2025)

Gift tax exemptions (per calendar year):

All donations made by the donor in one calendar year to one particular person (and his spouse/registered partner) are added together.

Therefore, the exemptions and rates apply to this total amount.

Donation with loan back

Many people would love to donate to their children, but still find it an unpleasant thought to "undress while alive." After all, one does not know what might happen next. One method of donating but not having to pay anything out yet is to donate on paper with a loan back. However, one cannot arrange this themselves. One must go to the notary. The notary draws up a deed in which the parents agree with their children that the parents will donate an amount of money to each of the children, which the parents then immediately borrow back.

However, interest must be paid on the amount thus acknowledged to the children. This interest must actually be paid annually. Since the amendment to the Inheritance Tax Act on January 1, 2010, this interest is at least 6%.

Under the Income Tax Act 2001, the interest paid by the parents is not a deduction for them and the interest received by the children is not taxed income for them. It is therefore very attractive -especially with large assets- to donate substantial sums of money with simultaneous repayment. To transfer assets, interest at a fairly high rate (but at least 6%) can then be attractive.

The law includes a notional return tax (capital gains tax), whereby part of the assets in box 3 are taxed. This obviously applies to both parents and children. The capital gains tax has long been 1.2%. Now (2025) it is calculated as follows.

The tax-free capital is € 57,684.00 per taxpayer. For tax partners together, this amount is € 115,368.00.

If your capital in box 3 exceeds the levy-free capital, income tax is due. Here a distinction is made between three separate asset categories:

bank balances, other assets and debts. A different fixed rate of return applies to each category. In 2025, these are (for now) the following percentages:

bank balances: 1.44%

other assets: 5.88

debts: 2,62%

The percentage of tax to be paid on this is 36%.

In the case of a gift with a loan back, this means the following.

The amount recognized as owed falls into the children's box 3 under the category "other assets" and is taxed if the child exceeds the tax-free capital. The parents may deduct the acknowledged amount as a debt in box 3 (taking into account the fixed rate of return of 2.62%). How much income tax must ultimately be paid depends on the size and composition of the assets in box 3 and is different for each situation.

Redeemability

The deed of gift can stipulate with respect to the acknowledged amounts that they are only payable in case of death, placement under guardianship or going into a nursing home or similar institution of the (surviving) parent.

Securing assets upon admission to a nursing home

It may be important to state in the deed of gift that the claim is payable if, among other things, the parents or the surviving parent stays/resides in a nursing home or similar institution and it appears that they or the surviving parent will not leave this institution permanently in order to live independently again.

If a parent is admitted to a nursing home, a contribution to the costs must be paid pursuant to various statutory regulations such as the Long-Term Care Act (formerly known as the AWBZ Algemene Wet Bijzondere Ziektekosten).

To calculate the co-payment, income is taken into account, but also assets in Box 3 (after deduction of the tax-free assets). The latter is called the "asset addition". Since Jan. 1, 2023, this wealth count depends on the category of assets in box 3 (bank balances, other assets and debts) for the calculation of the "high own contribution".

If it is stipulated in the deed of gift that the claim is -under conditions- payable if a parent stays permanently in a nursing home, this reduces the box 3 assets and thus possibly also the own contribution for care.

Retaining proof of payment

It is important to keep the payment receipts (copies of the daily statements showing the amortization of the interest) well. In the inheritance tax return, where you list the debt acknowledgement as a debt, the IRS will ask for proof of the interest payment.

Interest payment

It is very important that the interest owed by the parents to the children is actually paid. In practice, it happens quite often that the interest is not actually paid, but added to the debt owed to the children. When that happens, the annual gift has no effect in saving inheritance tax. It is therefore very important that the actual payment of interest is not ignored out of laziness or liquidity concerns.

Liquidity

To be clear, the amount donated does not have to be held, at the time of the donation, by cash or in a bank account. The gift with loan back is made "purely on paper."

The interest must be paid in real terms, preferably by bank transfer. Then it can always be demonstrated to the tax authorities that the interest has indeed been paid in real terms.

Increased exemption

Children between the age of 18 and 40 years can be given an increased exempt amount (€ 32,195.00 for the year 2025). The annual exemption (€ 6,713.00) cannot be added to this amount.

The exempt amount of € 32,195.00 can be increased to € 67,064.00 if the child to whom the gift is made uses this amount for a special study of the child in question.

If your own child is already 40 years of age or older, you can still make use of the one-time exemption if his/her spouse or registered partner has not yet reached the age of 40.

The exemption must be claimed in the tax return.

Increased exemption for own home

Until December 31, 2023, there was an increased exemption for an owner-occupied home. This exemption has been completely abolished as of January 1, 2024.

Inheritance tax savings.

Amounts donated (acknowledged guilty) over the years no longer belong to the donor's estate. On paper, these amounts belong (as claims) to the assets of the children.

This has -also- the consequence that upon the donor's death no inheritance tax is payable on these amounts.

An example:

Father, widower, has assets of € 700,000.00. He has two children.

If father were to do nothing, the children would each inherit € 350,000.00 and on this would total

€ 98,962.00 (rate 2025) in inheritance tax would be due.

If father would gift € 100,000.00 "on paper" to each child twice (in two different calendar years), a total of € 37,312.00 in gift tax (rate 2025) would be due on these gifts.

Father then leaves € 300,000.00. The children owe a total of € 24,902.00 in inheritance tax on this. The children therefore save a total of € 36,748.00 in tax.

When?

Many people do not think about making donations until December. However, it is possible, when one is at the notary for the passing of a deed of donation, to also have donation proxies passed. The notary can then contact the client(s) at the beginning of January each year to ask whether they wish to donate again in the new year. There is no need to visit the notary anymore. Everything can then be arranged by power of attorney.

However, in the case of a gift with loan back (gift "on paper", see page 1), the donor must sign the deed personally and a power of attorney cannot be used. In this situation, however, the donors can accept the gift by proxy.