Finance Bill to change the basis of interest-free loans to children

Brendan Burgess

Brendan Burgess

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Tax change to see clampdown on bank of Mum and Dad

Finance Bill set to increase taxable benefit on interest-free loans used to help buy homes
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Up to now, the gift was based on the best deposit rate which the lender could have got.

The Finance Bill proposes to change it to the lowest mortgage rate the borrower could have got.

It's probably not that significant at the moment, but could be if interest rates rise.

A loan of €100,000 @ 2% would be €2,000 a year well below the €3,000 exemption from each parent, or €6,000 combined exemption.

But I suppose it does use up part of that exemption.

Brendan
 
Good decision.

The proposed provision was way too vague to be of any practical application.

Who is to say what the lowest rate a beneficiary could have borrowed the money in the open market? Mortgage rate? Personal loan rate? Credit card rate? Fat Tony’s special rate?
 
Wasn't the biggest issue with the change that the amounts needed to be accounted for and actively reported to the Revenue by both parties? Or was that always the case?
 
Sarenco said:
Good decision.

The proposed provision was way too vague to be of any practical application.

Who is to say what the lowest rate a beneficiary could have borrowed the money in the open market? Mortgage rate? Personal loan rate? Credit card rate? Fat Tony’s special rate?
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Agreed it was badly written. Surely it wouldn't have been too difficult to strike a rate for this purpose now, e.g. ECB + 3% with the possibility of reviewing that every few years if necessary. They used to operate something similar for calculating BIK on preferential rate loans to bank staff. Not sure what happens now since interest rates dropped so low anyway.
 
Good to see it reversed. It was a particularly mean-minded idea to tax (at artificially inflated interest rates) the normal bit of help a parent might give a child out of already taxed income.
 
And it’s not Bertie-esque ducking and diving…if/when the loan becomes a gift or inheritance, the taxman gets his pound of flesh.
 
Brendan Burgess said:
So you object to paying VAT on your pint of Guinness as well or on your petrol or the Local Property Tax. All are paid out of already taxed income.

Brendan
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There's a difference. I can accept the principle of income taxes, consumption taxes and capital taxes. They are conceptually different and they tax different things.

In the Bank of Mom and Dad scenario, you have a normal intra-family act of parental kindness being artificially valued at many multiples of the cost to the parents in order to extract a tax from the child. As I said, a particularly mean-minded grab. I find it hard to even contemplate the mentality that thought this was a good idea.


And that's without even looking at the unwieldy and unduly onerous compliance effort and cost. It is a bad tax proposal in every way.

What's next? Kid borrows parents car for a day - do we whack them with the notional cost of hiring a similar car from a car-hire company? Or maybe we should assess them at full restaurant rates if Mom and Dad cook a meal for them. Or hotel rates if they live at home. It's a ridiculous revenue overreach - great that they've backed off, but no doubt they'll have a go again.
 
I think it was a stupid idea in the first place, so I agree with you.

But you fall into the trap of "already taxed income". That is what I was challenging.

There are many arguments about not taxing these loans, but "already taxed income" is not one of them.

Brendan
 
So as it stands a wealthy couple can lend their child a half a million euros with a gentle repayment schedule of say 40 years. With interest at 0% that's just €1,040 a month.

The status quo is pretty advantageous to the wealthy.

I think a better approach would be to put a ceiling on how much can be lent at 0% interest, with a higher rate kicking in above it.
 
Hi Coyote

Why not make that submission directly to the Minister?

It certainly would solve all the problems of deciding what the appropriate rate is.

Brendan
 
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