Looking for advice on the following. An elderly relative downsizing house following the death of her husband. She has seen a house but seller wants to offer house to people who are cash buyers. Elderly relative needs a about €80k to be a cash buyer and I am prepared to lend it to her on the basis that when she sells her own house she will repay me. I have no concerns at all regarding the return of the money but want to know if there any tax implications or other issues which I should be aware of. Any advice appreciated. Thanks.
A short term loan
- Thread starter trustno1
- Start date
Not a tax adviser so take what I write as opinion. You can lend this money but you would need to draw up a contract as God forbid if they died before paying you back then you would have a lot of legal challenges to claim your money back from their estate. Only tax issue would be possible benefit in kind as they are getting use of money without paying interest.
Brendan Burgess
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Hi Trust
If you charge 3%, or more, interest on the loan, there are no tax consequences for her, except that you will have to pay income tax on the interest received.
If you give it interest-free, in theory, it's subject to Capital Acquisitions Tax on the benefit received. Say €80,000 @3% =€2,400 which is below the €3,000 annual exemption. So no problem there. (In any event, Revenue are not interested in such transactions.)
You do not need to draw up a very formal contract. But you and she need to be clear in writing what you are doing. A short letter to her saying "Dear Aunt Nell, I enclose a cheque for €80,000 as a loan repayable when you sell your own house." Ideally, but not essentially, the closest relatives e.g. the children or the sister of the woman should know what you are doing, just to make sure that there is no dispute if anything happens before she sells her house. But if you or she wants to keep it private, then there is no need to do this.
Thirsty's advice might make some sense in the case of helping out someone in financial difficulty who is unlikely to be able to repay the loan or if it is for a very small amount. It makes absolutely no sense in this situation. If you give her a gift, she will be subject to CAT on it. If she gifts it back to you, you will be subject to CAT on it.
You are effectively giving her a bridging loan. Go ahead with it. Well done. That is what family is for.
Brendan
If you charge 3%, or more, interest on the loan, there are no tax consequences for her, except that you will have to pay income tax on the interest received.
If you give it interest-free, in theory, it's subject to Capital Acquisitions Tax on the benefit received. Say €80,000 @3% =€2,400 which is below the €3,000 annual exemption. So no problem there. (In any event, Revenue are not interested in such transactions.)
You do not need to draw up a very formal contract. But you and she need to be clear in writing what you are doing. A short letter to her saying "Dear Aunt Nell, I enclose a cheque for €80,000 as a loan repayable when you sell your own house." Ideally, but not essentially, the closest relatives e.g. the children or the sister of the woman should know what you are doing, just to make sure that there is no dispute if anything happens before she sells her house. But if you or she wants to keep it private, then there is no need to do this.
Thirsty's advice might make some sense in the case of helping out someone in financial difficulty who is unlikely to be able to repay the loan or if it is for a very small amount. It makes absolutely no sense in this situation. If you give her a gift, she will be subject to CAT on it. If she gifts it back to you, you will be subject to CAT on it.
You are effectively giving her a bridging loan. Go ahead with it. Well done. That is what family is for.
Brendan
Brendan Burgess
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That is a brilliant solution.
I would imagine that it would be very difficult for an elderly person to sell their own house and rent, while looking for a new house to buy.
Moving from their existing house to their new house will be disruptive enough.
I assume that the elderly relative is going to put their existing house on the market as soon as they sign the contracts for the new house and that the proceeds will be at the hundreds of thousands of euro level, so repaying the €80,000 will not leave them short.
Brendan