Transferring money between family memebers

tis me

Hello. I am looking to purchase a new apartment and currently have about half the purchase price in cash myself. A family member has offered to lend me the other half in cash in order to buy the apartment without the need for a mortgage/bank loan. The apartment is being sold for 300K. I would then pay back this family member €1,000 per month for 12.5 yrs (i.e. an interest free loan).

Could someone advise me on the tax implications of this arrangement please.

1. The initial transfer of 150k for the apartment transfer
2. The monthly payment of 1k

Thanks.

Water John

It's a loan, not money transfer. Make sure this is drawn by a solr. Probably a solr for each party. I would also get the loan/contract stamped. Costs 2% of the yearly repayment, once off cost.

What security is this person looking for?

Don't know whether the zero interest would be seen as a benefit by Revenue or would it be of interest to them, at all.
I am not a solr. Just did a property lease in the family, recently.

368100

Water John wrote: »

It's a loan, not money transfer. Make sure this is drawn by a solr. Probably a solr for each party. I would also get the loan/contract stamped. Costs 2% of the yearly repayment, once off cost.

What security is this person looking for?

Don't know whether the zero interest would be seen as a benefit by Revenue or would it be of interest to them, at all.
I am not a solr. Just did a property lease in the family, recently.

Why do people answer posts without answering the OP question but giving instructions on things that were not part of the question. What relevance to a tax liability is what security might be needed?

OP, revenue normally treat these as informal agreements, particularly if there is no interest being paid. If there was interest being paid they would want to know so they could take the interest income to the other party.

tis me

This would be a very informal arrangement (for us anyway). No security required. And preferably no contracts or solicitors required. The family member would also be fine with me saving the 1,000 a month in my own name and perhaps transferring or investing it at a later date. Would that initial transfer of 150k be taxable? Would it perhaps make sense to purchase the property jointly to avoid a liability?

Thanks for the advise so far and any other insight on this matter.

368100

tis me wrote: »

This would be a very informal arrangement (for us anyway). No security required. And preferably no contracts or solicitors required. The family member would also be fine with me saving the 1,000 a month in my own name and perhaps transferring or investing it at a later date. Would that initial transfer of 150k be taxable? Would it perhaps make sense to purchase the property jointly to avoid a liability?

Thanks for the advise so far and any other insight on this matter.

If it's an informal loan the 150k loan transfer shouldn't create a liability. If you purchase it jointly make sure that the repayment on their half isnt seen as rent or there would be a tax liability for them on the rental income, this might be the preferred route from another aspect to protect you in the case of a dispute.

tis me

368100 wrote: »

If it's an informal loan the 150k loan transfer shouldn't create a liability.

That's good to know. Thanks

But does it have to be evidenced as an 'informal loan'? i.e. does there have to be evidence of me paying it back?

If there is no transfer trail of me paying it back does it just get classified as a gift? What would the tax liability be on a gift of 150k?

Thanks again for the replies. Very helpful

368100

tis me wrote: »

That's good to know. Thanks

But does it have to be evidenced as an 'informal loan'? i.e. does there have to be evidence of me paying it back?

If there is no transfer trail of me paying it back does it just get classified as a gift? What would the tax liability be on a gift of 150k?

Thanks again for the replies. Very helpful

I'd keep records of all repayments made as evidence it was a loan. The capital aquisitions liability on a gift depends on how the other person is related to you, normally its taxed at 33% (unsure if this was revised in today's budget) but there are a few limited exceptions with strict condition e.g. gift from parent to child. I recently had land transferred to me from a parent and didn't pay any CAT as site was below an acre and being used to build a house for my primary dwelling.

See here http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html


http://www.revenue.ie/en/gains-gifts-and-inheritance/gift-and-inheritance-tax-cat/index.aspx

scheister

the 150k is an interest free loan.

Revenue will deem the interest free part to be a gift
AFAIK and i have seen discussion on this the relevant rate Revenue will use is what they person would get if they put the money on deposit . I'll be nice and say they would get 1% from an on demand account. So gift per year is €1,500. Its is under the 3k annual gift exemption so no tax arises. Be careful that rate does not increase over the 12.5 years so tax will be liabile from that point

Be careful if they write off any part of the loan as that will be seen as a gift as well.
If it was me i would get a loan agreement written up. This covers you if Revenue come looking for proof it was a gift. I would also include a line on what happen in the death of either party.

Water John

Agree Scheister. Have documentation that makes it clear to Revenue. That is the main point. Prove it a loan and not a gift.

averagejoe123

I would just do up a letter between you and the family member (provided they are happy to do so) stating that.

<I "the family member" am giving "tis me" a loan of €150,000 at 0% interest.

The repayment of this loan will be €1,000 per month commencing on DD/MM/YYYY.

Signed the family member.>

As already mentioned the possible interest falls below the allowable €3,000 p/a so nothing due there.

exaisle

averagejoe123 wrote: »

I would just do up a letter between you and the family member (provided they are happy to do so) stating that.

<I "the family member" am giving "tis me" a loan of €150,000 at 0% interest.

The repayment of this loan will be €1,000 per month commencing on DD/MM/YYYY.

Signed the family member.>

As already mentioned the possible interest falls below the allowable €3,000 p/a so nothing due there.

Scheister (love the nickname) is absolutely correct. Have a loan agreement written up and witnessed by a peace commissioner/solicitor to prove that it was in place before the loan was given. An informal letter can be drawn up and backdated, so it's likely that Revenue would discount it.

averagejoe123

exaisle wrote: »

Scheister (love the nickname) is absolutely correct. Have a loan agreement written up and witnessed by a peace commissioner/solicitor to prove that it was in place before the loan was given. An informal letter can be drawn up and backdated, so it's likely that Revenue would discount it.

An easy way to prove this is to scan it in and email it to both parties on the date of signing. This should be enough proof.

tis me

368100 wrote: »

I'd keep records of all repayments made as evidence it was a loan. The capital aquisitions liability on a gift depends on how the other person is related to you, normally its taxed at 33% (unsure if this was revised in today's budget) but there are a few limited exceptions with strict condition e.g. gift from parent to child. I recently had land transferred to me from a parent and didn't pay any CAT as site was below an acre and being used to build a house for my primary dwelling.

See here

Thanks for that link on the revenue website. Answers a lot of my questions right there.