On 1 January 2024, tax rules changed: there is a new mandatory filing obligation where a person receives a gift in respect of certain loans from close relatives. Here we outline what loans are subject to the new reporting obligation, how a close relative is defined – and what this means for you.
Loans are a popular and sometimes practical way to support family members. Even though the provision of a loan can come with gift-tax consequences regarding the free use of the funds and gift or inheritance tax implications if the loan is written-off or not repaid, loans are generally a favoured route for parents wishing to help their children get onto the property ladder.
An interest-free loan is a gift on which tax must be calculated and paid, if due. The value of the gift is the highest rate of return the person making the loan could obtain if the funds were invested on deposit.
Until recently, there was generally no requirement to file a Capital Acquisitions Tax (CAT) return in respect of such loans, until 80% of the recipient’s relevant tax-free threshold was exceeded.
However, on 1 January 2024, the tax rules changed to include a new mandatory filing obligation where a person receives a gift in respect of certain loans from close relatives. Importantly, the amendment to the legislation impacts existing as well as new loans.
While this new tax filing requirement does not create new tax liabilities, it aims to provide the Revenue Commissioners with greater visibility in respect of loans between close relatives where the loans are provided interest-free or below a market interest rate.
What loans are subject to the new reporting obligation?
A filing obligation arises where:
- there is a loan between close relatives;
- a gift arises in respect of the loan;
- no interest has been paid on the loan within six months of the end of the calendar year; and
- the combined balance on the loan and any other such loan exceeds €335,000 on at least one day during the calendar year.
So, how is a “close relative” defined?
A “close relative” includes persons in the CAT Group A or B thresholds – so, parents but also wider relatives such as grandparents, brothers, sisters, aunts, uncles.
What if the loan is provided to or received from a private company?
It is important to note that the tax filing obligation also applies if:
- the loan is from a company to a person, where the beneficial owner of the company is a close relative of the borrower.
- the loan is from a person to a company, where the beneficial owner of the company and the person making the loan are close relatives.
- the loan is from one company to another company, where the beneficial owner of the borrowing company and the beneficial owner of the lending company are close relatives.
What is the filing obligation?
The rules deem an individual to have received a benefit on 31 December each year, meaning the CAT return would need to be filed no later than 31 October (or the extended ROS filing deadline) in the following year. Therefore, the first mandatory filing date will be 31 October 2025.
Whether or not a person breaches the €335,000 loan limit would need to be considered in respect of each calendar year.
If a CAT filing obligation arises, the following will need to be disclosed on the return:
- the name, address and tax reference number of the person who made the loan; and
- the balance outstanding on the loan
What this means for you?
As this new reporting obligation applies to both existing and new loans, it is important to review all such loan arrangements in place to determine whether a filing obligation will apply.
If you wish to consider this new rule as part of an overall financial review of your affairs, please contact your Goodbody representative.
Important information
This information is for general guidance on matters of interest only, and does not constitute professional advice. Nothing in this blog post constitutes investment, legal, financial, accounting or tax advice and does not confirm that a strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. Recipients should always seek independent tax and legal advice.
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