Lending money to a friend

F

fozzle

Guest
Hi, I know you'll all advise against this but I'm considering lending a friend €135,000.

However, I do need to know what the tax implications are? They would pay me back in yearly installments over 10yrs. I was planning to charge a minimum interest, around 2.5% p.a, which I presume I'd have to pay tax on but I've heard conflicting opinions on whether or not the person I'm lending to would have to pay tax on the full amount Can anyone enlighten me?

thanks for any help!
 
If this is a loan and not a gift, I don't think your friend would be liable to tax on it.

I won't advise you against loaning money to your friend if you are very rich:) If €135,000 is an insignificant amount of money for you and you won't miss it if it's never paid back to you, then go ahead and lend:)
 
I will enlighten you as I see it. NEVER EVER loan money to a friend or work colleague. It will almost certainly lose you a friend.
 
Thanks, it's not a big amount to me, I was just worried about the tax on their side. So as long as they pay what they can I'm happy.
 
There is no tax implication for your friend as it's not a gift.

If you write it off, it could be considered a gift and he would be liable to Capital Acquisitions Tax on the value of the gift.

You will be subject to income tax at your top rate on the interest received.

Make sure to do up a contract, so it's clearly not a gift and so that he takes it seriously.

Even if it's not a lot of money for you, it's a lot of money for them and they need to respect it.

Brendan
 
Thanks Brendan, that's exactly what I needed. I didn't mean to be flippant it's just that I can afford it. We'll get a proper document drawn up for sure.

thanks for the quick replies everyone!
 
If the rate is well below the normal market rate the difference could be seen as a gift and liable to gift tax?
 
Brendan Burgess said:
There is no tax implication for your friend as it's not a gift.

If you write it off, it could be considered a gift and he would be liable to Capital Acquisitions Tax on the value of the gift.

You will be subject to income tax at your top rate on the interest received.

Make sure to do up a contract, so it's clearly not a gift and so that he takes it seriously.

Even if it's not a lot of money for you, it's a lot of money for them and they need to respect it.

Brendan
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Sorry Brendan, but the above may not be correct.

There are gift tax implications in relation to loans provided on terms that are more generous than (say) a "normal" commercial loan.

Such an arrangement is caught under the "free use of property" CAT provisions.

The difference between the actual interest and generally available commercial interest is the benefit. If it exceeds the €3,000 annual exemption, it would start to eat into the Group C threshold in the OP's example (where 2.5% would be considered a "sweetheart deal").
 
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