Rules change on interest-free loans to family members

Lending family members money to help at pinch points in their lives - like buying a home - is common but be aware that the Revenue rules have changed. Photograph: iStock

I’ll get around to the gifting element of your query in a bit but we’ll stick to the loan side of things for now. The essential difference between a family loan and a gift is the question of interest. If you are charging interest, we are talking about a loan; if no interest is being charged, it is clearly a gift.

Revenue was pushing a couple of years back to change those rules to force families to match bank loan interest rates which would have taken a lot of the good out of family loans. But, in the event, that provision never made it into the Finance Act at the time. A specified loan is one on which no interest is paid in the six months after the end of each year and, importantly, where the loan balance at any time during that year – not just at year end – was in excess of €335,000. If you have more than one family loan, you would need to tot them together and ensure that, between them, they did not exceed that €335,000 limit at any point during the year.

That brings me back to your query about what paperwork you need to have either for a gift or a loan. It is certainly advisable to have a note outlining the status of the transaction, ideally signed by both parties, but there is no need to get a solicitor involved unless you would be more comfortable doing so. The important thing is to have a record and to keep it should it be required in the future.

Just be careful that you are giving the gift to her and not jointly to her and her husband/partner. In the latter case, he or she would be assessed as getting half the money from you and the amount they can receive from you before tax is far more modest – just €16,250 – as they are seen as a “stranger in blood” to you, which would see the partner facing a tax bill.

Revenue-Commissioners Michael-Mcgrath

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