Interest Free Loan - Implications

H

Hamlet10

Registered User
Messages
7
Hi
Any guidance gratefully received on my 2 questions!

We have paid our mortgage off on our current home (lots of scrimping & saving) and are considering trading up. Our house is on the market and are bidding on a property at the moment. We are fortunate that our parents are willing to provide us with an interest free loan to purchase our next home.

Q1) We have mortgage approval for €200k which is what we need (to refurbish the new property), but what are the implications if we decide not to avail of the mortgage and take it from my parents instead? We'd plan to pay them back @1200 a month (for the next 2 years or so) and then up it to €2500 when my wife goes back to work.

Q2) Also, even if we decide to take a mortgage with EBS, we may still avail of a "interest
free bridging loan' from my parents until our house is sold.

Appreciate all responses (and any recommendations for solicitors / architects / builders!)

Thanks
 
Just bumping this as haven't received any replies? Should I post in another section?
Thanks
 
Hi Hamlet,

I think the lack of responses is because the questions are not quite clear. What implications are you concerned about? Tax? Family relations?

Tax:
Your parents would be liable to income tax on the notional value of the interest that you are not paying them (arguably at the rate they could get on deposit, ie sod all) and you would be liable to CAT on the same amount but it would be below the €3000 per annum each threshold so again, no implications.

What happens if disaster strikes you or them? If they write off the loan there would be CAT implications, but it's below the lifetime threshold for Group A so no problem. What if they need the money back urgently for some reason? What if both of you get disastered at the same time and you can't get a mortgage to repay them when they need it?

Do you have siblings who would expect the same treatment? Will it cause a family feud?

There is a separate forum to ask for recommendations for builders, surveyors, etc. I assume you're in Dublin since you didn't specify :p
 
Thanks for responding. It's the tax implications.

If anything happened my parents, they intend updating their will to reflect this and I will repay to the estate or my share of their estate will be reduced by this amount. Is that ok?

We've considered what will happen in the case of any deaths / separations, etc and will take legal advice on it too.

I just don't know if a mortgage while definitely more expensive isn't "easier".......
 
Mrs Vimes said:
Your parents would be liable to income tax on the notional value of the interest that you are not paying them (arguably at the rate they could get on deposit, ie sod all)
Click to expand...

I've never heard of being taxed on notional interest? Can you elaborate.
 
would my parents not have to pay tax on the notional interest I have to pay them for the loan?
 
@Joe_90

Sorry, I think I must have been thinking of notional rent, which wouldn't necessarily apply either (think it's only for Sectioned properties?).

You'd think I'd be awake at lunchtime!
 
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