The housing market for young adults

_{This article has been written by DNB Private Banking legal advisers Åse Kristin Nebb Ek and Helene Langlo Volle}

Many people want to help their children onto the housing ladder, some own an apartment already or want to buy. We look at how this can be organised in terms of ownership, financing and the Norwegian State Educational Loan Fund. 

Whether the apartment should be in the parents’ or in the child’s name will normally depend on whether it is intended as an investment for parents, or whether it is a desire for the young adult to enter the housing market.

• If the child owns the apartment themselves, no benefit tax applies to the child for their own use. Here, the child can also receive tax-free rental income for long-term rentals (30 days or more) on the condition that the child uses at least half of the apartment as a home calculated by rental value, which can be used to finance ongoing costs of loans and other expenses.
• When the child lives in his/her own apartment that they own, the apartment is taxed as an asset valued as a primary residence at 25 per cent of the share of calculated market value (70 per cent of the share of calculated market value above NOK 10 million in 2023). In the event of a sale, a profit will be tax-free for the child, provided that the child has owned and lived in the apartment for at least one of the last two years before the sale is agreed.

Financing
There are several ways a child can finance their purchase. If parents have available capital, they can give the money as a gift to the child if desired and/or provide a private loan to the child, and the loan can be interest-free. There is currently no inheritance tax. There is no inheritance tax or other fees for gifts and inheritances today.

• A possible loan relationship between parents and children should be regulated in a private loan agreement and must be followed up in the respective tax returns. Debt is recorded against the child and the receivable is recorded as an asset for the parents. If interest payments are agreed, the child is entitled to interest rate deductions and parents receive interest income. This applies regardless of whether the interest is actually paid or is only added to the principal of the loan.
• If the child will finance the apartment with a loan from the bank, the rules in the home mortgage regulations must also be followed. It must be specifically assessed whether the child or the parents will be the main borrower. If the child does not have any income, this can be solved by parents being co-borrowers or main borrowers. DNB Private Banking prefers the owner of the home to be the main borrower.
• In tax terms, the bank reports the loan against the main borrower. For example, if the child is in a study situation, but is the main borrower with parents as co-borrowers, deductions for debt interest can provide negative general income for the child. The child’s loss can be carried forward against later years’ income. If parents pay interest and instalments on a loan that is fully owned by the child, parents do not have the right to deduct as co-borrowers. In such a situation, the parents’ payment is considered a gift or as a loan to their own child.
• However, if there are parents who become the main borrower with the bank, the parents will be entitled to interest rate and debt deductions. If the money is lent to the child for the child’s purchase of the apartment, this internal loan must be recognised as a receivable in the parents’ tax return and as liability in the child’s tax return as mentioned above. It is recommended that a private loan agreement be drawn up. Parents are free to decide whether they want to give their child a gift by passing on the loan in whole or in part.

Transfer of the apartment owned by the parents
If the parents currently own an apartment that they want to transfer to the child, there is currently no gift or inheritance fee for such a transfer. If it is desirable for the child to pay a fee – including taking over debt – parents will be taxed on any profit if the fee is higher than their cost price on the apartment, unless the parents used the apartment as their own home and the conditions for tax-free profit are met.

We are constantly asked when parents own and will transfer the apartment to the child, if the transfer of the legal title in the land register of the Norwegian Mapping Authority must take place. Such a transfer will trigger 2.5 per cent of the document fee of the market price at the time of registration. There is no requirement to make this transfer. What should be done must be specifically assessed in the individual case where the assessment should take the parents' financial position into account, how long the child will be in the apartment, the bank's claim for loan financing etc. The Norwegian Mapping Authority reports the apartment to the Norwegian Tax Administration against the name that appears in the land registry. If the apartment is not being transferred to the child, it is important to follow up and adjust the tax returns of the parents and the child with the new beneficial ownership.

Deed of gift
For a gift transfer from parents to children, we remind you of the possibility of specifying that the gift should be the child’s separate property. If you have more children you want to help – but at different times, please be aware that new rules apply to reducing inheritance advances to life heirs in the Inheritance Act that apply from 1 January 2021. In order for the reduction to be taken into account in the final inheritance settlement in the event of death, the reduction must be set as a condition at the time of the gift. Such a reduction condition should be made in writing and made known to the other heirs in a deed of gift. The Inheritance Act does not regulate inflation adjustment, so if a provider wants such an adjustment - this must be determined in the deed of gift.

Students who receive loans from the Norwegian State Educational Loan Fund are entitled, on certain terms, to convert parts of the loan into grants. To keep the maximum grant in 2022 for a single applicant in higher education with support throughout the year, the student cannot have:

• net assets above NOK 467 697
• income (individual and capital income) above NOK 205 579

However, the student does not lose the entire grant if the income/net assets exceed the aforementioned limits, but the stairs are gradually reduced based on the income/net capital the student has. You can read more about the terms and conditions for loans and grants and how the rules on reduction work on this page - How conversion works (lanekassen.no)

To assess the asset side, the tax values as they appear in the tax return are included in the net assets and not the fair market value. Your own owned home where you live (primary residence) is valued only at 25 per cent of the share of calculated market value (70 per cent of the share of calculated market value above NOK 10 million in 2023). This value is often shown in sales prospectuses and can give an indication of how high a level of debt you can have before you enter an asset position. Debts that the student incurs in connection with the purchase of the apartment – including loans from their own parents – will reduce the taxable capital and increase the possibility of grants in the Norwegian State Educational Loan Fund.

You can read more about the terms and conditions for loans and grants at lånekasse.no

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