Loan and gift tax

S

Sandra14

New Member
Messages
3
A sibling is giving me 70k to help buy a house, 40k will obviously be covered under the Cat B threshold, if we draw up a loan agreement for the extra 30k and state that 3k per year would be paid back through the 3k gift allowance until loan and any interest due is fully paid, would there be any tax implications ?
 
Last edited:
To be clear, you're getting a gift of 40k and a loan of 30k? You will repay 30k plus interest over time with a serious of annual instalments of 3k, and you will not repay the 40k at all?

No CAT liability for you on the 40k gift because it's within the 40k threshold (assuming you have received no other Category B gifts/inheritances in the past).

No CAT liablity for you on the 30k interest-bearing loan because it's not a gift (assuming the interest rate you pay is at least as high as your sibling could have got if they deposted the 30k in a bank instead of lending it to you).

No CAT liablity for your sibling on the annual instalments you pay to him by way of repayment of the loan and payment of interest because they are not gifts either. (Therefore there is no need to limit these instalments to 3k per year.)

However the interest component of the annual payment to your siblign is income, and attracts income tax. Your sibling should include the interest amount in their tax return.

If, instead of lending the money to you, your sibling put the money on deposit they'd pay DIRT at 33% on the interest earned; under this arrangement they'll pay income tax at their marginal rate which, depending on their circumstances, may be higher or lower than 33%, but in the big picture the difference is not going to be huge. If necessary you can agree pay your sibling a slightly higher interest rate so that the after-tax amount they receive is not less than what they would have received if they had deposited the money in a bank.
 
TomEdison said:
To be clear, you're getting a gift of 40k and a loan of 30k? You will repay 30k plus interest over time with a serious of annual instalments of 3k, and you will not repay the 40k at all?

No CAT liability for you on the 40k gift because it's within the 40k threshold (assuming you have received no other Category B gifts/inheritances in the past).

No CAT liablity for you on the 30k interest-bearing loan because it's not a gift (assuming the interest rate you pay is at least as high as your sibling could have got if they deposted the 30k in a bank instead of lending it to you).

No CAT liablity for your sibling on the annual instalments you pay to him by way of repayment of the loan and payment of interest because they are not gifts either. (Therefore there is no need to limit these instalments to 3k per year.)

However the interest component of the annual payment to your siblign is income, and attracts income tax. Your sibling should include the interest amount in their tax return.

If, instead of lending the money to you, your sibling put the money on deposit they'd pay DIRT at 33% on the interest earned; under this arrangement they'll pay income tax at their marginal rate which, depending on their circumstances, may be higher or lower than 33%, but in the big picture the difference is not going to be huge. If necessary you can agree pay your sibling a slightly higher interest rate so that the after-tax amount they receive is not less than what they would have received if they had deposited the money in a bank.
Click to expand...
Thank you, yes, a gift of 40k and a loan of 30k whereby the loan agreement would be written up to state that in the following years he would make a gift to me of €3000 annually over approx. 11 years which in effect would pay off the loan plus the deposit interest he would have received if he had deposited the money.
 
No, you can't draft up a document saying that.

If you're going that road, you just document that he's giving you a loan of 30k interest free, repayable on demand. Then once each year, he writes to you to say he's forgiven 3k of your debt and the balance is now 27, 24, 21 etc... you sign it and acknowledge it.
 
What Torblednam said. If your sibling enters into an agreement now to make a series of payments, or a series of debt waivers, of 3k each over a period in the future, that's a gift in this tax year of the present value of the series of payments.
 
Last edited:
You must log in or register to reply here.
Back
Top