Interest free loan – gift tax
If you receive an interest free loan, this is a benefit and you may have to pay gift 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.
If the loan is repaid during the year, the date of repayment is used to calculate the value of the gift for that year.
For example:
Frank gives an interest free loan of €300,000 to his niece Rose on 1 January. The highest rate of return he could receive from an investment on deposit is 1.5%.
Loan value multiplied by 1.5% (highest rate on deposit) equals taxable value of €4,500.
This is regarded as a gift of €4,500 to Rose. The relevant tax date is 31 December each year, until the loan is paid off. Each gift is taken into account for aggregation purposes.
If Rose was to repay the loan at the end of October, this date of repayment is used to calculate the value of the gift for that year at a fraction of 10 over 12.
Any queries on the above give me a call on 091 763817 or email me at oliver@taxreturnhelp.ie