Interest free loan, tax implications?

Are there tax implications for an interest free loan to a sibling?
I know there is for a gift but if I'm just lending money, to be paid back interest free, will the revenue have an interest?
It would be a six figure sum

Peregrinus

Yes, the Revenue will have an interest.

If you're given an interest-free loan (or a loan at below-market rates) you're treated as receiving a gift each year that the loan continues, equal to the value of the interest that the lender could have got by lending the money in the open market.

So if, for example, you lend your brother 100,000 interest-free, and you could get (say) 2% in an arm's length transaction, your brother is treated as receiving a gift each year (while the loan continues) equal to 100,000 x 2% - 2,000. Obviously, depending on the wider circumstances, there's every chance that the gift tax liability on such a gift will be nil, but in principle it's within the charge to gift tax.

sword1

bubblypop wrote: »

Are there tax implications for an interest free loan to a sibling?
I know there is for a gift but if I'm just lending money, to be paid back interest free, will the revenue have an interest?
It would be a six figure sum

The first 3k a year is tax free so you should be able to lend 150k tax free or 300k if he is married I think if they are not getting gifts from anyone else in the same year . No expert so check it out first

thejourney

Peregrinus wrote: »

Yes, the Revenue will have an interest.

If you're given an interest-free loan (or a loan at below-market rates) you're treated as receiving a gift each year that the loan continues, equal to the value of the interest that the lender could have got by lending the money in the open market.

So if, for example, you lend your brother 100,000 interest-free, and you could get (say) 2% in an arm's length transaction, your brother is treated as receiving a gift each year (while the loan continues) equal to 100,000 x 2% - 2,000. Obviously, depending on the wider circumstances, there's every chance that the gift tax liability on such a gift will be nil, but in principle it's within the charge to gift tax.

What about if its an interest free loan to business from a mother in law in another country that has the double tay agreement ?


or

If a 20 year business loan from the same person about, with the first 10 years interest free and the next 10 years at 3.7%?

average_runner

Peregrinus wrote: »

Yes, the Revenue will have an interest.

If you're given an interest-free loan (or a loan at below-market rates) you're treated as receiving a gift each year that the loan continues, equal to the value of the interest that the lender could have got by lending the money in the open market.

So if, for example, you lend your brother 100,000 interest-free, and you could get (say) 2% in an arm's length transaction, your brother is treated as receiving a gift each year (while the loan continues) equal to 100,000 x 2% - 2,000. Obviously, depending on the wider circumstances, there's every chance that the gift tax liability on such a gift will be nil, but in principle it's within the charge to gift tax.

But car dealers are giving interest free loans and there is no tax issues?

thejourney

average_runner wrote: »

But car dealers are giving interest free loans and there is no tax issues?

Well thats no the same

I am stilling waiting for answer to my Q

Peregrinus

thejourney wrote: »

What about if its an interest free loan to business from a mother in law in another country that has the double tay agreement ?


or

If a 20 year business loan from the same person about, with the first 10 years interest free and the next 10 years at 3.7%?

The rules already outlined apply to both these cases. Why would you think otherwise?

Peregrinus

average_runner wrote: »

But car dealers are giving interest free loans and there is no tax issues?

Car dealers don't give interest-free loans. Car dealers give you cars. (They're not gifts, either.)