€100,000 Interest Free Loan to My Brother, Possible?

blobert

Hi,

Let's say I wanted to loan my brother €100,000 to help him be able to afford a house. I would be loaning him this money interest free. The idea would be he would repay it in the future (10+ years) when my elderly mother passed away (he would be in line to receive a decent inheritance at this point in time) and until then not pay back any of it.

Is there likely to be issue with this from a tax perspective?

On the Revenue site it says

Interest free loan
If you receive an interest free loan, this is a benefit and you may have to pay tax on it. The relevant tax date for this benefit is 31 December each year until the loan is paid off. The value of the benefit is the rate of return the funds would generate if they were invested on deposit.

I'm wondering would it be possible to argue that the benefit of this was within the €3,000 yearly gift allowance?

Ie if I had my €100,000 on deposit and it was earning 1% interest (and the reality is most of my money is now earning none or negative interest) then the interest (€1k) would come in well under €3k limit?

I believe I could gift him €32k without CAT as he's my brother so that might reduce the loan amount further.

If anyone has any ideas with this I'd appreciate it. I'd imagine it's quite a common situation of parents loaning money to their children to buy property, maybe less so siblings.

Thanks in advance!

cronos

blobert wrote: »

Hi,

Let's say I wanted to loan my brother €100,000 to help him be able to afford a house. I would be loaning him this money interest free. The idea would be he would repay it in the future (10+ years) when my elderly mother passed away (he would be in line to receive a decent inheritance at this point in time) and until then not pay back any of it.

Is there likely to be issue with this from a tax perspective?

On the Revenue site it says




I'm wondering would it be possible to argue that the benefit of this was within the €3,000 yearly gift allowance?

Ie if I had my €100,000 on deposit and it was earning 1% interest (and the reality is most of my money is now earning none or negative interest) then the interest (€1k) would come in well under €3k limit?

I believe I could gift him €32k without CAT as he's my brother so that might reduce the loan amount further.

If anyone has any ideas with this I'd appreciate it. I'd imagine it's quite a common situation of parents loaning money to their children to buy property, maybe less so siblings.

Thanks in advance!

I don't know the tax side of it but I would at least suggest linking the loan to inflation otherwise it's not break even. Not sure that matter's for tax purposes, but would at least keep it even at a minimum.

nompere

Calahonda52 wrote: »

IMO, you are better having an interest rate in the written loan agreement, otherwise, IIRC, Revenue will input a fairly high rate for BIK on your bro.

Yes you will be taxed on the income..
You can't mix the CAT allowance which is capital, with income.
You need to be able to show the transfer of the 3k, if going that route, so can't be imputed.
If you are married/ civil p/ship etc you could do 3k each.

Just to note this is not advice, just something to think about

If there's no interest on the loan then there's no income tax to pay on that interest.

There's no bik as the brother is not an employee of the OP.

As Revenue say in their notes, the element of gift is the amount foregone - and there's no way to get close to 3% from your local friendly bank manager. So the benefit will fall within the small gifts exemption.

blobert

Thanks for the replies guys.

Regarding inflation I'm not that concerned if I dont get the equivalent value back in 10-15 years (or less), the initial amount would be fine.

If the benefit falls within the small gifts exemption is it fair to say that there should be no tax issue?

My plan would be to have a basic signed agreement between us and a note to say that as it stands the best interest rate I can get from the bank is x% ect.

If interest rates go above 3% during the period of the loan I'm imagining a tax issue may arise.

Would this be somthing I'd need to make Revenue aware of or would it be sufficient to have the above agreement in place if queried?

Thanks again!

loyatemu

there's also a lifetime exemption for siblings of €32,500.
https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-thresholds.aspx

daheff

if you want to (at least try) to keep this above board and away from revenue, what you could do is draw up an agreement (you should do anyways).


While you could put in a loan interest amount whereby he pays you the interest and then you gift it back to him each year (keeping below the annual threshold), the problem (for you) is that you then have an interest income which you will need to declare and pay taxes on.


If you allow your brother borrow the money interest free, there could be a taxable issue down the line for both of you.

as an aside, interest rates are at historical lows. A 1 year EURIBOR rate is at -0.4580% (5th Oct), so any interest rate you would decide on would be a quite low amount in any case (1.5% would not be unreasonable imo as its between family members).

Jim Root

you'd be mad to lend €100k over 10 years without seeking at least inflation by way of return. You'd only get back 90% or so of the value if inflation grows 1% per annum. Giving an interest free loan is very generous enough as it is.

TheW1zard

Could you buy a car for 100,000 and transfer the ownership to him, then he sells it!

AndrewJRenko

TheW1zard wrote: »

Could you buy a car for 100,000 and transfer the ownership to him, then he sells it!

Do you really think it's that easy to evade tax?

OP, you might want to think about the wisdom of mixing family and financials. What happens if his financial situation is dramatically different when the time comes to repay - perhaps for medical reasons, or perhaps because a relationship has broken down. If he can't or won't repay, will this screw up family relations?

Heres Johnny

TheW1zard wrote: »

Could you buy a car for 100,000 and transfer the ownership to him, then he sells it!

Still a transfer of assets, same as cash.
Except the car would lose a huge chunk straight away. Sell to who exactly?

893bet

TheW1zard wrote: »

Could you buy a car for 100,000 and transfer the ownership to him, then he sells it!

Stick to sniffing out the fake Rolex.

Tax ain’t your forte

TheW1zard

893bet wrote: »

Stick to sniffing out the fake Rolex.

Tax ain’t your forte

Jaysus ur some craic

blobert

AndrewJRenko wrote: »

OP, you might want to think about the wisdom of mixing family and financials. What happens if his financial situation is dramatically different when the time comes to repay - perhaps for medical reasons, or perhaps because a relationship has broken down. If he can't or won't repay, will this screw up family relations?

I'd agree normally but in this case I'm ok with the possibility of me not getting the money back and it would not cause difficulties in our relationship

you'd be mad to lend €100k over 10 years without seeking at least inflation by way of return. You'd only get back 90% or so of the value if inflation grows 1% per annum. Giving an interest free loan is very generous enough as it is.

Likewise I'm fine with this. I'm lending him this money as I'm in a very fortunate position where it does not matter to me but would be of use to him. I also suspect it might add complication if he's paying me back more than he borrows, ie it may seem like interest.

So, more generally, am I right in saying (and I realise none of this is tax advice) that if I were to loan him the money interest free and the likely interest I could get in the bank always comes in well below the €3k limit that there should not be a major issue with it?

Thanks again