Making a loan

MOH

Don't know if this is the appropriate forum - please move if necessary.

I am quite close, though not related in any way, to two people who are moving house. Obviously, they'll need some of the money from the sale to finance the purchase. They've found the house they want, but as it's taking time to sell their own, they're worried they're going to lose out on their target house. It's causing them quite a bit of stress.

I'd suggested getting some kind of bridging loan from their bank against their own house, but apart from the interest involved, due to their age they'll need to go through quite a lot of paperwork, almost like getting a mortgage.

I now find that I may be in a position to lend them the amount they need privately, but I want to make sure I go about it in a way that doesn't leave them open to any tax liability.

Obviously, if the money was considered a gift there'd be a sizable CAT liability, so do I need to draw up a formal loan agreement?

Do I have to charge interest? I suspect if I give them an interest free loan that the revenue may consider that to include a gift, of the amount of interest that would reasonably be charged - but given it's only going to be for a few months, I expect that interest would fall below the taxable threshold.

I appreciate I'll probably need to get proper advice from a tax consultant, but if anyone has any thoughts or could point me towards any relevant online resource, I'd be grateful.(I had a quick look at citizensinformation.ie but couldn't find anything relevant.)

kmick

You need a proper tax consultant/solicitor. I would imagine you would have to provide the loan at market rates or else it would be seen as a preferential loan. Not sure what the implications tax wise are though. Also think about the implications if their own house never sold? Can they afford the interest on two. I my opinion if they cant sell their own and cant afford to keep them both then this is a risky proposition for you (unless of course you are extremely rich and can afford it.)

yom 1

There should be no implications tax wise as it is not a gift to them. It is a loan agreement which they will have to pay back.

Whether you charge interest is up to you but it wont affect whether they should or shouldnt pay tax.

I would advise you to talk to your solicitor about drawing up a legally binding loan agreement which clearly states methods of repayment - nothing personal just business and all that.

They may have a problem with drawing down their own mortgage though if it is seen that they are repaying you monthly on your loan aswell. The other problem you may have is whether the couple on selling their house will have sufficient equity to pay you back once sold. If they dont it could get messy considering they are close mates of yours who will owe you a considerable amount of money. But like I said a contract/loan agreement should cover you here.

Hope this helps you a little

Dub13

Moved from Consumer Issues

MOH

Thank you both for the advice (and sorry for posting in the wrong forum).

They own their current house outright, and will have no additional mortgage on the new house - their savings + my loan will cover it.

There's no problem selling their current house. And I think they've a chance of getting more for it if they're not rushing to sell it immediately. And even if they do ultimately need to sell well below the current valuation, it's still more than enough to cover the loan.

RainyDay

Sounds risky, particularly in the current housing market. Lots of friends & family have fallen out over money. Think about scenarios like

- they are unable to sell for months or years
- they decide to rent the property instead of selling, and offer to repay you over 5 years from the rent
- they have a disagreement between them and you end up caught in the crossfire

If they don't need to mortgage the new property, they will have no difficulty borrowing the money from a bank or credit union.