Tax implications on parental loans

Lucreto

I have put down a booking deposit on a house and my parents have said they would cover the shortfall over the help to buy, the mortgage and my savings.

Is there a tax implications for this?

They said I should put every cent of my own money into the house and they will repay me.

The loan amount would be around 30k.

I don't want my parents paying a heap in tax for helping me.

Any help would be much appreciated.

newmember2

When you go to drawdown the mortgage are the mortgage provider not going to want to know from what funds are you making up the difference between their loan and the cost of the house? If you tell them you have an outstanding loan amount of 30k then this will affect the mortgage they're offering you. There are no tax implications for a loan so I would just tell the bank it's a gift.

ottolwinner

They are giving you €30k? Loan or gift?

if it’s a loan you can get a loan note/agreement. Don’t quote me on it but I think you can sign a doc each year wavering any interest on the loan for their taxes.

dennyk

https://www.boards.ie/discussion/2058304250/tax-implications-on-parental-loans

There could be some tax implications, but it depends on the structure of this arrangement. None would require your parents to pay "a heap of tax", though; most would affect you.

• If your parents give you an interest free loan, the amount of interest the loan would have accrued each year in a regular deposit account until you've paid it back is considered a gift to you and CAT liability would apply. Given current deposit interest rates, though, it's not likely that would exceed the annual €3k small gift exemption unless they're giving you a hefty six-figure loan, so you would likely not actually owe any CAT or have anything deducted from your lifetime Group A threshold in that scenario, unless your parents gave you other gifts the same year that already used up the annual exemption threshold.
• If your parents give you a gift in excess of €6k in a single year (€3k from each of your parents), that gift will be subject to CAT, and would be set against your lifetime Group A threshold. Again, unless it's a very large gift or you've already received gifts or inheritances from others in Group A before that have put you close to the threshold, there won't be any tax owed now, but it will reduce your lifetime threshold amount, which means future gifts or inheritances from your parents might put you over that threshold sooner and you'll owe more CAT at that time. (Keep in mind that in this scenario any "repayment" would also be a gift from you to your parents and could attract CAT liability if it's over €3k per parent per year, however...)
• If you are paying your parents interest on this loan, that interest would be income and they would have to report it on their income tax return and pay tax on it. Chances are this interest income would be minimal, however.

The other wrinkle here is that this transaction will also affect your mortgage eligibility. If your parents loan you money to cover the deposit before you purchase the property, your mortgage provider most likely won't issue you a loan; they would be concerned that your parents could have a legal claim to your property on the basis of the loan, and concerned about how that liability will affect your ability to repay your mortgage. If your parents give you money, your lender will almost certainly require them to sign an affidavit that the money is a gift and no repayment is expected or required and that they waive any and all claims to the property you are purchasing.

If your parents want to help you with the purchase of the property and you'd like to reimburse them in turn, the best way to do that would likely be to accept your parent's contribution as a gift, keep a record of the gift for your CAT threshold (it's not necessary to report it to Revenue until you've exceeded 80% of your lifetime threshold), and then as a separate matter, you could gift your parents up to €3k a year each tax-free. (If you are married, you could also gift €6k to your spouse and your spouse could then gift each of your parents €3k for a total of €12k per year, as gifts between spouses are not subject to CAT and the €3k limit is between each distinct disponer-beneficiary pair).

Claiming to your bank that your parent's money is a gift and to Revenue that your parent's money is a loan would not be advisable, as you'd be defrauding one party or the other in that case, which is illegal.