A man works as a tax consultant and also participates in his parents' agricultural partnership. In 2015, he buys the parental home for €315,000. He borrows the full amount from his parents. The arrangements: 9% interest per year, a ten-year term, no repayment and no mortgage. The man capitalises the house on his company balance sheet and deducts the interest as a business expense. After the purchase, everyone continues to live in the house as usual: the man himself, his parents and his two sisters.
9% non-business
The man argues that a bank would never have financed him. No mortgage, no own money, a company house in agricultural land. According to him, crowdfunding was the only alternative and there interest rates of up to 8% apply. With a small mark-up, you then arrive at 9%. The court did not go along with this. Although the parents had not stipulated a mortgage, they had collateral. The partnership deed provided that the husband was not allowed to sell or encumber the house without his parents' consent. Moreover, the parents had stipulated a repurchase right. And then there was the family relationship. The husband was unlikely to alienate the parental home without consultation. The parents were therefore much less at risk than any third party. An interest rate of 4.5% is appropriate.
Value of the property
In 2018, the husband contributes his share in the partnership to a limited company. He keeps the property outside the contribution and transfers it to private. In doing so, he claims a substantial book loss. The house is listed on the balance sheet for almost €370,000, but according to an appraiser, the value has dropped to €275,000. Moreover, the man applies a discount of 35% due to self-occupation. Below the line: a loss of over €190,000. Appraisals of the property's value vary: €275,000, €300,000 and €392,000. The inspector retains the value of €392,000. After adjustment, the loss turns into profit. The court finds none of the valuations convincing and sets the value in good justice at €350,000. With the discount of 35% due to self-occupation, a book loss still remains, but much smaller: €32,017 instead of €190,000.
Fine overturned
The inspector had also imposed an offence penalty. The man was alleged to have intentionally filed a false return. The court rejected this. The inspector based his reasoning on the assumption that self-occupation depresses the value both when the property is purchased and when it is withdrawn. That assumption is incorrect. It does not apply in the case of purchase. This removes the basis for the penalty.