changing a Loan to a Gift

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3littlefish

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If you lend money to a relative and some years later write off the loan to them as a gift, when making a tax return should the date of the gift reflect the original date the money was given OR the date it was reclassified as a gift?
 
If you don't have original loan documentation properly drawn up and is commercially and lawfully binding, then it was always a gift IMHO.
 
I don't agree, I've loaned money and been paid back and it was never in writing.
 
I think it is a matter of truth (and, if the taxman gets interested, believability). If what you outline is what really happened, then I would date the gift at when the decision was made to forgive it.

On the believability question: I can readily accept a scenario where a parent made a loan to a child to assist in the purchase of a property and now, with the changes in property values and employment prospects, deciding to forgive the loan.
 
If it was some years ago, remember the person receiving the gift was allowed a tax-free gift from you each year of €3000. That €3000 should include the notional interest that borrower would have paid if he had the loan from a bank.
You could find the loan disappears, written off at €3000 per year, or is at least brought down under the CAT threshold.
 
I was speaking from the POV of the taxman seeking to tax and how do you prove that it was a Loan as opposed to a Gift, without evidence of any repayments.

The Loan will convert to a Gift upon the cessation of repayments of the Loan, if there is no documentation. Otherwise the tax-man will assume its a Gift (if only for the purpose of eating up the threshold for future gifts).

As another Poster pointed out, it is a Question of Fact.
 
The point about writing the loan off at 3000 p.a cant apply as this was not actually done. the threshold is valued but does not tie in with what you did.

The date of the gift is when the beneficiary becomes beneficially entitled in possession. This was when you wrote off the loan

The point about documentation comes down to contract.

I would say that if you declared it as at the forgiveness date it would be acceptable to Revenue.

john Conlon
conlonosullivan.ie
 
thanks for the input.

to clarify, loan was below the group threshold so no tax was due if was deemed a gift. It was to be paid back in a lump sum if they were in a position to, otherwise to keep it as a gift. There have been no repayments and it is going to be kept as a gift.

If it is only called a gift from now, does that mean that you also have to gift them the interest they didn't pay while it was a loan? Would Rev mind if it was just called a gift from the outset? Again, that there was no tax due on it.
thanks
 
I'm guessing that this was a family arrangement. Given the condition that it be paid back only if they were in a position to do so, I think the Revenue Commissioners would not be too upset if it were treated as a gift from day 1. You could have an endless argument about when the condition for categorising it as a gift was met.
 
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