GIFTS AND LOANS TO CHILDREN

Purpose and Benefits of Financial Support

Could your child benefit from financial support? Perhaps for education costs, purchasing a home, or during periods of unemployment? Your financial assistance could help make these dreams achievable!

Strategic Gifting to Reduce Taxes

A commonly used and relatively straightforward method to financially support your child is by gifting money. By strategically utilising exemptions and tax-efficient gift structures, you can significantly reduce tax liabilities—not only at the moment of gifting but also in the future. Depending on the size of your estate and applicable exemptions, inheritance tax for your child(ren) can range from 10% on amounts up to €158,669, rising to 20% for amounts above this threshold. By gifting strategically within the lowest tax band (10%) to your child(ren) during your lifetime, you can reduce the inheritance tax payable upon your death.

Annual and Special Gift Exemptions

As a parent, you may gift your child a certain amount annually without incurring any tax. In 2026, this amount is €6,908. If you make a gift to a child aged between 18 and 40 years, this exemption can be increased once to €33,129. For gifts specifically intended to fund expensive studies or education, the exemption can even be increased once to €69,009.

Gift on Paper

If you wish to make a gift but prefer not to or are unable to transfer the entire amount in cash immediately, you have the option of making a "gift under acknowledgement of debt," also known as a "gift on paper." The advantage of this method is that you retain control of the gifted assets and liquidity, while still benefiting from gift tax exemptions. To effectively utilise this method for inheritance tax savings, you must actually pay your child at least 6% interest annually. It is advisable to have a gift on paper officially recorded by a notary.

Conditional Gifts and Asset Protection

A gift may become part of your child's partner’s assets through marriage or cohabitation agreements. To prevent this, you can include an "exclusion clause" in your gift, ensuring the gift remains exclusively your child's property. Additionally, gifting significant sums could eventually impact your financial independence. You can include a condition allowing you to revoke the gift if necessary.

Family Business Succession

When gifting a business, you can, under certain conditions, utilise the Business Succession Scheme (BOR) and the Income Tax Deferral Scheme (DSR). The BOR offers substantial gift tax exemptions, while the DSR permits the deferral of income tax payments, provided the business continues operating. In 2026, the BOR exemption is 100% for business assets up to €1,543,500 and 75% for amounts above this.

Family Loans as an Alternative

Especially when interest rates on savings deposits are low, a family loan can be an attractive alternative. However, ensure that you establish clear, business-like agreements and document the terms carefully. Clearly stipulate the interest rate, loan duration, repayment schedule, intended use, enforceability, conditions for termination, and any securities provided.

Owner-Occupied Home Loans

You can lend money to your child for the purchase, renovation, or maintenance of an owner-occupied home through a notarised or private deed. The loan must be fully repaid within 30 years and must follow at least an annuity repayment schedule. It is advisable to establish a mortgage for the loan.

Combining Loan and Gift

In the same year that your child pays you interest, you could give your child a gift within the annual gift-tax exemption (€6,908 in 2026). However, it is essential that the gift and interest payment remain entirely separate transactions and are certainly not offset against each other.

Risk-Bearing Participation

If your child plans to start their own business, a straightforward loan might be an obvious option. However, a risk-bearing participation by you as a financier in your child’s startup could potentially benefit both parties. There are numerous ways to structure this arrangement.
 

More information

For more information about this subject, you can read the advisory handbook.
 

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