Friday 14 August 2020

Bank economists say ‘bank of mum and dad’ tax break is inflating house prices

Photo: DutchNews.nl

A group of economists have called for the government to abolish the tax-free exemption for cash gifts from parents to children to help them buy a home, arguing it is stoking house price inflation.

The rule, introduced during the banking crisis which led to a 20% drop in property prices, allows parents to give up to €103,643 to children under 40, provided the money is used to buy a home.

‘The exemption for gifts needs to end,’ Nic Vrieselaar of Rabobank’s research arm RaboResearch told AD. ‘The role was introduced in the last crisis when more than one-third of houses in the Netherlands were in negative equity.

‘Back then it made sense to help the younger generation get out of debt with these gifts. In recent years the gifts have probably been used to bid above the asking price or buy a bigger house.

‘We think that has led to house prices rising much faster than would have been the case otherwise, meaning that first-time buyers without rich parents are missing out or have to borrow more to have a chance of owning a home.’

The average house price currently stands at around €330,000, three times the value of 25 years ago, while wages have increased by around 60% over the same period. The average house is now worth 9.2 times the average income of €36,000.

RaboResearch estimates that 9,000 families made use of the exemption in 2016, when the limit was €50,000. It was doubled to €100,000 at the start of 2017.

Usually gifts from parents are taxed at 10% for the first €126,713 and 20% thereafter, with a tax-free threshold of just €5,515.

Thank you for donating to DutchNews.nl

The DutchNews.nl team would like to thank all the generous readers who have made a donation in recent weeks. Your financial support has helped us to expand our coverage of the coronavirus crisis into the evenings and weekends and make sure you are kept up to date with the latest developments.

DutchNews.nl has been free for 14 years, but without the financial backing of our readers, we would not be able to provide you with fair and accurate news and features about all things Dutch. Your contributions make this possible.

If you have not yet made a donation, but would like to, you can do so via Ideal, credit card or Paypal.