# Is there tax on inter family loan ?



## oldnick (12 Jan 2012)

If I lend my child (or any relative) 100.000 euros are there any tax consequences like B.I.K ?

And if that child puts the money in a bank account can she reclaim the DIRT because she has no other income ?


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## mandelbrot (12 Jan 2012)

Are we talking about a minor child, or an adult?


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## oldnick (12 Jan 2012)

Sorry, 18 -I suppose she's an adult now.


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## Mrs Vimes (12 Jan 2012)

Unless she's over 65 or permanently incapacitated then her income being below the limits for income tax will not exempt her from DIRT in any case so if that was the motivation then I'm afraid it's not a flier however if you have other reasons then I don't see any problems (apart from questioning the wisdom of giving 18-year-olds large sums of money )


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## oldnick (12 Jan 2012)

I know DIRT must be paid but i do believe Revenue will refund it if one's total income allows it. That is, if one earns nothing or little one can claim one's money back.

I'm less sure of loans between family and the tax consequences of that.

If there is no tax on inter family loans and my daughter decided to put her loan in an interest bearing account and claim a refund on the DIRT would that arouse Revenue's ire?.


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## Joe_90 (12 Jan 2012)

Mrs Vimes said:


> Unless she's over 65 or permanently incapacitated then her income being below the limits for income tax will not exempt her from DIRT )



As Mrs Vimes says you can't get a refund of DIRT unless your over 65 or permanently incapacitated.  Having no other income is irrelevant.


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## oldnick (12 Jan 2012)

Blow!  that's one wheeze out of the picture. 
Might as well give her a property now where she won't pay any tax on the rental income until she starts earning, rather than me paying over 50% tax on it.
Now surely that'll work ?
(Property value under threshold. I know it'll affect the eventual inheritance tax situation. )


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## Bronte (17 Jan 2012)

So your motivation is to minimise tax? Because as a landlord you are now paying tax at the higher rate etc.  

Have you tried involving your daughter in the rental business to see how she gets on with it and see if she is able for the responsibility.


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## oldnick (17 Jan 2012)

yes, bronte -am looking for ways to avoid tax. (Whatever is legally allowed as I'm too cowardly at my age to start tax-dodging). 
Good idea what you say about getting her a bit involved. Good training for future life in any job -dealing with tenants and sometimes having to be a bit strict -plus builders,decorators and utility people and bills etc.
Thanks.


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## Gekko (20 Jan 2012)

oldnick said:


> If I lend my child (or any relative) 100.000 euros are there any tax consequences like B.I.K ?


 
Yes.

If you're not charging her interest (or an "arms length" amount of interest), the interest that she's not paying is treated as a gift.

Unlike a preferential loan, there's no "specified rate", so it's reasonable to ascertain the interest rate applicable to a comparable loan from a bank, and apply that rate to your loan in order to calculate the notional interest.

That's then subject to gift tax.

Important to remember the annual small gift exemption (€3,000) with such loans.  For example, each parent can advance an interest free loan to their child with notional interest of €3,000 arising annually without eating into the child's Group A threshold.


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## Aureus (22 Jan 2012)

Strictly speaking, this would be an "_intra_-family loan"


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## oldnick (22 Jan 2012)

Ah, such pedantry my auric Latin philologist -but am happy to be corrected.


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## L0llip0p (24 Nov 2013)

Hi all.

So if Im looking at best method to transfer 100k to my adult child, it should be a loan?

If it was a personal loan, with some nominal rate of interest agreed, this isn't regarded as a gift (naturally) and so their gift tax threshold (250k) is unaffected???

Have I got that right? But if no interest was applied to the loan, .... What happens?


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## T McGibney (24 Nov 2013)

Gekko said:


> Yes.
> 
> If you're not charging her interest (or an "arms length" amount of interest), the interest that she's not paying is treated as a gift.
> 
> .



Btw, this is incorrect.


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## L0llip0p (24 Nov 2013)

im more confused now.

Does this mean a personal loan agreed with an interst rate would affect receivers gift tax threshold?


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## dub_nerd (24 Nov 2013)

T McGibney said:


> Btw, this is incorrect.


 
Can you lend any amount of money to anyone at zero interest without tax implications?


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## STEINER (24 Nov 2013)

dub_nerd said:


> Can you lend any amount of money to anyone at zero interest without tax implications?



see Bertie Ahern case saga......


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## L0llip0p (24 Nov 2013)

I doubt Berties dealings are any model to base my future transactions on ...

Seriously though. Im hoping someone can confirm my understanding (misunderstanding?) above?


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## T McGibney (24 Nov 2013)

L0llip0p said:


> I doubt Berties dealings are any model to base my future transactions on ...
> 
> Seriously though. Im hoping someone can confirm my understanding (misunderstanding?) above?


Bertie's case is an extremely useful precedent, illustrating perfectly the distinction between loans and gifts.

If you're still in doubt and/or are likely to be worried by this, it should be worth your while getting specific professional advice.


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## mandelbrot (24 Nov 2013)

dub_nerd said:


> Can you lend any amount of money to anyone at zero interest without tax implications?


 
Nope
http://www.revenue.ie/en/tax/cat/guide/free-property-loans.html


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## L0llip0p (25 Nov 2013)

I realise that an interest-free loan could certainly be seen as a method of avoidance in terms of gift tax thresholds etc. but if there was any rate of interest applied to this personal loan, surely this would not affect the gift tax threshold.

Just unsure if loans between family members are treated differently is all.


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## mandelbrot (25 Nov 2013)

L0llip0p said:


> I realise that an interest-free loan could certainly be seen as a method of avoidance in terms of gift tax thresholds etc. but if there was any rate of interest applied to this personal loan, surely this would not affect the gift tax threshold.
> 
> Just unsure if loans between family members are treated differently is all.


 
Did you read the link I posted? It's a very simple principle.

It's not sufficient that "any" rate of interest is applied - the difference between the rate applied (which is nil if it's interest free) and the rate that the recipient would have to pay a bank for an equivalent (i.e. in this case unsecured) loan of similar amount, is the deemed gift.

So, if you lend it at 0.5% and a bank would charge 10% then there is a gift element of 9.5%.

The only difference for family members will be the different thresholds that it is eating into.


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## L0llip0p (25 Nov 2013)

I did read the article yes.

This doesn't seem right in so far as I am willing to loan money to a person (thus taking a risk if unsecured) but yet the rate I apply must match that of a profit driven lending institution? Am I not control of my own rate? My own risk?

Why be punished here? Seems grossly unfair?

Its like saying all people on tracker rates should pay an extra tax......


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## L0llip0p (25 Nov 2013)

Its


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## orka (25 Nov 2013)

L0llip0p said:


> I am willing to loan money to a person (thus taking a risk if unsecured) but yet the rate I apply must match that of a profit driven lending institution? Am I not control of my own rate? My own risk?


The issue is nothing to do with you/your situation/your risk - and no-one is telling what rate (if any) to apply. Revenue are assessing what benefit accrues to the person being lent the money - what value should be placed on the benefit they are receiving.  The issue is looked at entirely from the point of view of the recipient of a benefit.  An available alternative commercial rate seems a fair way of assessing this.


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## dub_nerd (11 Aug 2018)

orka said:


> The issue is nothing to do with you/your situation/your risk - and no-one is telling what rate (if any) to apply. Revenue are assessing what benefit accrues to the person being lent the money - what value should be placed on the benefit they are receiving.  The issue is looked at entirely from the point of view of the recipient of a benefit.  An available alternative commercial rate seems a fair way of assessing this.


I know this thread is old but just in case someone searches across it as I just did ... the information above is wrong according to what looks like professional tax advice linked from this thread:

https://www.askaboutmoney.com/threads/helping-son-buy-house.207995/

Things are assessed from the point of view of the lender -- what rate of interest they could get from a bank.


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## Bronte (12 Aug 2018)

Not clear to me whether the ‘notional’ interest rate is that which would be charged by a bank or how much you’d get if you lodged it in a savings account.

Also that link mentions personal loan rates, but mortgages are a much lower rate.


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