Tax relief on loan from a parent

Hi,

My mother has money tucked away from an inheritance and a thirty something year old daughter still living at home in a big house. My mother wants to loan my sister the money to buy her own place, so my mother can then downsize.

They've both decided that this should be on commercial(ish) terms and that the loan from my mother will be secured by a mortgage on my sisters new home. Repayments will be in line with a mortgage from a bank (principal and interest).

My question is, could my sister get mortgage interest tax relief on her repayments to my mother? I know it's usually dealt with by relief at source through the lender but not sure how this could work as my mother is obviously not a bank! I've read up on this an it would seem to meet the requirements for a secured loan to buy a principal private residence, would my sister be able to claim the relief at year end from the Revenue?

The reason I'm asking is that it might make more sense for my mother to just guarantee a mortgage for my sister, but my mother likes the idea of getting a bit of money out of the bank and into something else to diversify (times being as they are!)

Thanks!

i believe this is possible yes, but i'm not sure if it is tax efficient - your mother would pay tax on the full interest received but your sister would only get relief on a small amount and for a short while

I take your point, but she is paying DIRT on the interest she is receiving on the lump sum in the bank anyway.

My recommendation would be to operate this arrangement within the family. There will be a lot of bureaucracy/paperwork and ultimate cost in putting a scheme together where TRS applies in a personal loan scenario. I have never come across a case of TRS being applied in this scenario & I suspect that the Revenue would not allow it, but why not talk to them if you feel that this is the course your mmother wants to take.