Inter-family loan


#1

I see the Gov have back tracked on plans to tax inter-family loans where those loans have only a nominal interest rate in place (they wanted to benchmark against market rates). It’s topical for me as in a couple of years I expect I will be giving my son a necessary helping hand towards his first home purchase unless there’s a timely market crash soon! Have any Pinsters done this with tax/gift minimisation in mind?

In particular I wanted to know what would happen if, for example, I gave my son €60,000 and we entered a short loan agreement to paper that at a nominal interest but in practice agreed that only €30,000 of the total 60k was actually a loan so he wouldn’t pay back the 30k balance at all?

While Revenue would not (I assume) know whether this balance was paid back or not, I assume once I pass that technically my estate would have claim to that outstanding €30k that was never repaid under the loan agreement? Or would there be an obligation at that point for my son to declare it as a gift with the Revenue, thus reducing their lifetime inheritance threshold by that 30k balance (not the end of the world but would rather avoid it). Is there a way to offset that balance using the annual small gift exemption i.e. €3,000 per year each from my wife and I (so €6,000 pa to my son)? It would be good to hear from anyone with experience of this.


#2

I got 20K off my parents towards buying my first house 4 years ago.

Solicitor took note of it when father signed the form saying it was a non-refundable gift (which the bank looks for) but I’m almost certain Revenue were not notified, so this won’t go towards my inheritance threshold.

I suspect that is the same across the country.


#3

Well it will in part count re threshold. Self assessment.


#4

Yes the bank will require the lender to sign a declaration deed that they have no right over the property etc. by virtue of the loan that is all fine and there would be no obligation to notify or involve the Revenue at the time of the loan/purchase. Your scenario is different as it was a straight 20k gift so difficult to see how that doesn’t count towards your eventual Cat A threshold when your folks go - perhaps it should technically already have been declared?! Maybe not.

Its down the line i’m talking about. When you do it as a loan - if it is all paid back then there’s no impact on inheritance/Revenue involvement - but there is surely an obligation on my son to inform Revenue when i pass that €X of the loan was never repaid. Son could of course say nothing at that time and hope for the best but…!


#5

It’s up to your executors to list the unpaid loan as an asset of your estate. Then if it’s forgiven, it would be part of your son’s inheritance and count towards his threshold.
Of course, there’s no way for your executors, or Revenue, to know, never mind prove, there’s an unpaid loan unless you tell them.


#6

Remember the Brown :email: lending facility?