Requirement to include theoretical loan interest from parental gifts on CAT allowerence

Yellow_Fern

https://www.independent.ie/business/personal-finance/tax/planned-tax-change-to-put-squeeze-on-soft-loans-from-the-bank-of-mum-and-dad-41035108.html

I saw this article and it got me thinking, is calculating the loan rates straight forward?

Yellow_Fern

Does anyone have any thoughts on this story and how the change will work?

I would say apply the interest rate to the loan from mam and dad that applies to the mortgage. If the rate was 4% and the loan was up to €150,000 then the theoretical loan interest is €6,000 or less, which is less than the annual small gift exemption therefore nothing to see here.

cruizer101

Its a strange one, in the majority of cases where people get money from parents I think the money isn't lent but is gifted, so that just comes out of the normal inheritance limit.

And it would have to be a quite substantial loan for the interest to exceed annual gift exemption.

Seems a bit of a pointless exercise

Yellow_Fern

https://www.irishtimes.com/business/personal-finance/government-steps-back-from-tinkering-with-bank-of-mum-and-dad-1.4727029

It seems the Government is stepping away from this proposal in the Finance Bill. They cite complexities of the measure.

These calculations could be a minefield.

IFRS 16 deals with it too and I have seen job ads specifically to deal with it.

Lots of scope for arguments around the interest rate applied like why would it be akin to a mortgage rather than say an unsecured personal loan.

5,000th post. I think I should retire.

Edit: 5001st meh.

Darc19

https://www.boards.ie/discussion/comment/118157298#Comment_118157298

Probably an idea from a civil servant who didn't think it through. The operation of it and stresses it could cause some people would not be worth the very miniscule returns from it.

Taking an average mortgage rate of 2.5%, and assuming 2 parents, you would be looking at just the very few getting €300,000+ from parents as a loan.

And then tax on just the amount over.

It might have brought in 20K in a year!

dxhound2005

A separate issue. But I hope the funding of mortgages by parents does not result in another wave of defaults. If the resources of a person or couple disqualifies them from getting a mortgage under the current rules, there is the danger that they will default.

In the old days the rules were designed to make sure that they could meet a monthly repayment for 20 years, when inflation was very high. In my own case, within a few months of getting the loan, my repayments rose to what would be the equivalent of an increase from €1,000 to €1,600 a month now. Those rules were abandoned temporarily, and that led to banks having to bail out the defaulters in times of negative equity. If inflation comes back there could be a lot of people struggling. The parents might not be around in 5 or 10 years to keep funding their children.

Atlantic Dawn

If you changed religion would you be exempt from paying any interest on the loan?