20k loan to parent, to be repaid when inheritance arrives

H

Honestly

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Hi

I am loaning my mam 20k to help her buy a new home for her retirement. She will repay me whenever her inheritance comes in from her father passing, could be 5 months or 5+ years.

I have seen on here I can give her an interest free loan, but that I might need to worry about taxes. What do I need to do to make sure I am doing things correctly?

Thanks
 
The interest free amount on a loan of 20K would be well within the 3K small gift exemption - so no tax implications for anyone
 
I'm confused if it's a 3k gift limit but I'm giving 17k more, how it works? Appreciate the help.
 
I'm no clearer after reading revenue, it seems like 3k per year is fine, but I need to give her 20k in one lump sum, hopefully this month.
 
Think of it as a loan with interest. But the interest due will be a lot lower than €3k per year, so can be considered a gift. Instead of her paying you interest each year, you gift her the same amount so no money changes hands.
 
You loan her 20K. You charge her a normal interest. She pays you the interest annually, say every 1st June. You gift her back the interest, as long as that gift back is under 3K then there is no tax. So 5% interest = 1K.

Since Jan of this year this loan has to be declared in your tax return.

You do up an agreement between you on paper, loan is 20K, interest is 5% payable 1st June annually, 20K repayable on receipt of inheritance from grandfather ............
 
I did that just yesterday, thanks for the clear guidance, appreciate it so so so much.
 
Hang on a second...

You do not do what Bronte suggested. You will be receiving €1k taxable interest so you will pay tax every year on the interest you receive.

Just give your mother a loan and do up a note that it is a loan and interest-free. Just to clarify that it is not a gift in case your mother dies before it is repaid.

Revenue has no interest at all in small family transactions like this.

Brendan
 
Brendan Burgess said:
Revenue has no interest at all in small family transactions like this.
Click to expand...
Revenue are aiming to tighten the net on inter family loans.

Free use of property and interest free loans

This page details the tax implications of free use of property and interest free loans
www.revenue.ie www.revenue.ie

Interest free loan​

If you receive an interest free loan, this is a benefit and you may have to pay tax on it. The value of the benefit is the rate of return the funds would generate if they were invested on deposit. The relevant tax date for this benefit is 31 December each year until the loan is paid off.

If the loan is repaid during the year, the date of repayment is used to calculate the value of the gift for that year.

You may have to file a return for this benefit. For further information, please see Filing obligations for certain interest free loans.
 
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Also

www.irishtimes.com

Rules change on interest-free loans to family members

Intra-family loans are very common in Ireland but all sides need to be aware of the rules if they want to avoid unwelcome tax bills
www.irishtimes.com www.irishtimes.com

The essential difference between a family loan and a gift is the question of interest. If you are charging interest, we are talking about a loan; if no interest is being charged, it is clearly a gift.

But how much interest? Revenue says that the interest payable must be at least the rate the parent (or whomever is making the loan) could secure for a demand deposit in the banks.
 
Hi Bronte

As I have said, Revenue has no interest in small loans.

If you lend your daughter €300k interest free to buy a house, then you will need to report it and account for it.

Brendan
 
Agreed, but revenue are pushing for it, and it might happen in the future, from the article:

Revenue was pushing a couple of years back to change those rules to force families to match bank loan interest rates which would have taken a lot of the good out of family loans. But, in the event, that provision never made it into the Finance Act at the time.

The new requirements apply to not just new loans but existing loans. OP needs to watch out for changes in tax rules going forward even if it does not affect them now.
 
Why does a family loan need interest? A loan is an amount that is paid back irrespective of interest (or none) applied is it not?

A gift is completely separate as there is no expectation or intention of it being paid back.
 
rustbucket said:
Why does a family loan need interest? A loan is an amount that is paid back irrespective of interest (or none) applied is it not?

A gift is completely separate as there is no expectation or intention of it being paid back.
Click to expand...
In a roundabout way you’ve answered your own question.

Charging of interest proves it’s not a gift.
 
Dr Strangelove said:
In a roundabout way you’ve answered your own question.

Charging of interest proves it’s not a gift.
Click to expand...
So does a mere statement ‘it’s a loan’ with an expectation it is paid back

Interest is merely a mechanism to make a profit from the loan
 
A loan is commonly the transfer of money with interest attached to it. When no interest is charged the question arises is it actually a loan. Or is it a gift. Generally interest free loans are family loans.

The Times article above says this:

The essential difference between a family loan and a gift is the question of interest. If you are charging interest, we are talking about a loan; if no interest is being charged, it is clearly a gift.

As a person who has given interest free loans to family, which were repaid, to me they were most definitely a loan and not a gift. And that article to me is confusing an interest free loan of 50K as automatically a gift unless I'm misreading it.

Separate to that Revenue have new rules on such loans if they are over 325K.
 
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