Family Bank

Taking out a money loan within the family instead of from a regular lender (bank) is also known as the "family bank". A loan can be granted by the family, for example, to purchase a home or finance a business. This can have advantages for both the money recipient and the lender. With the family bank, the main thing is to help the person who needs the money. This is a very different starting point from a regular bank, which still looks more with a profit motive.

Double benefit through a family bank

Due to all kinds of rules that banks (have to) apply, it is difficult for many to get a loan. Family members who want to lend do not have to worry about those rules. When interest rates on savings are low, this can make it extra attractive to lend the money. The opportunity to help a family member buy a house, for example, and also get more return on your savings can then be a great solution for both parties.

Avoid arguments

If you are toying with the thought of providing/receiving a family loan, it is wise to get well informed. This is because there are a lot of things to think about. In addition, it is important to put the agreements down on paper. After all, you don't want your good intentions to eventually lead to a family dispute. It is also desirable to avoid problems with the tax authorities.

What to think about with a family bank

Among other things, what should you think about when you start acting as a family bank:

• Do you draw up a money loan agreement yourself or have us do it for you?
  It is not compulsory to have a money loan agreement drawn up by a notary, you can also do this yourself. However, we are the designated adviser on the legal and tax implications of a loan. For example, on what to do in case of divorce, sale of the house, death and bankruptcy. All matters to lay down in the agreement so that everyone knows where they stand and no one is confronted with unpleasant surprises afterwards.
  
• Certainty that the money will be paid back
  If you actually wanted to donate the money, it is not so important to be sure that it will be paid back. When you do want to be sure that the money will be returned, it is important to demand certainty. For example, because it is money for old age or because you want to give the various children an equal position. You can get this security by giving the person you lend the money to a mortgage on their home or a pledge on shares or other assets. Establishing a mortgage can only be done through a notary, but all kinds of specific regulations apply to establishing a right of pledge as well.
  
• What interest rate may/should you charge?
  If the principal is payable on demand at all times, the interest rate within family must be at least 6%. If the loan is not payable at all times, the interest rate can also be lower. The starting point for the tax authorities is that there must be an arm's length interest rate. What constitutes an arm's length interest rate depends on the conditions in the money loan (fixed rate period, possible security, loan term, interest term, etc.). Incidentally, you can look at this from the debtor's position - what would they have to pay to the bank - but also from the creditor's position - what would they get in interest on their savings. A high interest rate can be advantageous in the context of mortgage interest deduction. A low interest rate can also be advantageous, but beware that the tax authorities do not see the saved interest as a gift. Donating back part of the interest is also possible, but again the tax authorities' rules should be carefully observed.
  
• Is there a right to mortgage interest deduction if you act as a family banker?
  Yes if it involves financing the family member's own home and the loan meets the conditions of the tax authorities, then the family member is entitled to mortgage interest deduction. If it is not to refinance a loan already existing on 1 January 2013, the loan will have to be repaid in addition to interest payments. This repayment must be at least annuity-based on a 30-year basis.
  
• How do I avoid disadvantaging another child by lending money to a child?
  You can lend to all children. Should that not be your intention or not possible, it is possible, for example, to stipulate that the loan must be repaid upon your death. You can also have arrangements included in your settlement estate to treat all children equally at your death. Another solution is to discuss the desire to lend money with all the children.

See contact details

For more information or questions about family money lending and the family bank, please contact us. You can reach us by calling +31 (0)10 285 88 88. Our enthusiastic and expert team will be happy to answer all your questions about family banking.