250,000 "loan" from sister

Lone Star

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If a sister loans another sibling 250,000 and it's a 'loan' that is to be paid back at 1250 a month.....is there a tax liability if the loan is without interest? the loaning sibling is much older and the younger recipient could outlive her with outstanding monies owed.
 
Is it a loan or a "loan"? Very different tax treatment.
A proper interest free loan, where it's to be repaid, wouldn't incur any tax - the amount of interest sister would earn by placing the money on deposit is a gift, but it falls under 3k per annum at current rates.
Best to put a written letter in place so there is an understanding of what is to happen if either party dies before the loan is repaid. Whether it's to be repaid to the estate or extinguishes would have different treatment.
 
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We're trying to get the bottom of something and if indeed it is a loan....it's supposedly a loan that was used to pay in part for a house...
 
If a sister loans another sibling 250,000 and it's a 'loan' that is to be paid back at 1250 a month.....is there a tax liability if the loan is without interest? the loaning sibling is much older and the younger recipient could outlive her with outstanding monies owed.

I think the question is what happens if the lender dies, will the loan be repaid by the borrower to the estate. Also how will all parties be tax compliant. Also will the estate have a claim to the property the loan is used for.
 
I would say the thinking is (if it is a loan) the loan 'falls away' if the lender pre-deceases the house owner....

It may not be a loan at all, but a gift and a cover up of where all or part of the cash actually came from...

Food for thought with your comment AlbacoreA
 
I would say the thinking is (if it is a loan) the loan 'falls away' if the lender pre-
Sounds like a "loan"...
Could get messy from tax perspective. The group b threshold is just over 30k, so there could be a big gift tax outstanding on this. Are they at least making the monthly repayments, with a clear trail (i.e not cash!).
 
I think so that both parties are not under any miss-understanding, it should be a formal contract.
If the Lender passes away and has no will, or has not made it clear what to do with this loan.
It may end up split up across different people not all who might not refuse the inheritance or debt.

So many of these "loans" end up in court, I would want it formalised myself if I was either party.
 
Update: Only one repayment made in the last 6 months.....how long could one wait/would a revenue investigator wait to discover that the 250,000 is quite possibly a sibling to sibling gift. How the loan can be serviced to the end is doubtful...as it would place the person paying the monthly instalments in their mid to late 70's.....or later again if there are big gaps in payments as is the case at moment...
 
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Hi Not a tax adviser here.

My understanding is as follows.

1. Contacts need to place to confirm this is a Loan and NOT gift. ( Keeps all parties in clear at to whats going on)

2. If you get interested in free Loan. There is Technically a taxable benefit to you. That should be declared to revenue every year. I believe Revenue calculate the rate at the default rate 8% per year or the different of this figure minus the % you have agreed to pay.

example interest-free revenue calculate the benefit at 8% per year.

Low rate loan 2% - revenue rate 8% leave 6% taxable benefit t6o be payed

Their view is you have the benefit of the use of €250K so it needs to taxed.

Speak to a Good tax adviser about this and get contracts drawn up.
 
I believe Revenue calculate the rate at the default rate 8% per year or the different of this figure minus the % you have agreed to pay.
There's no 8%. It's not a loan from an employer at preferable rates.
The calculation is based on the deposit interest rate foregone, so it's not an issue.

The biggest issue here is it looks like a gift of the total amount if it's not being repaid.

Lone Star, even if the money isn't being repaid, so long as it remains repayable even after death it's a loan.

It might never be discovered, or it could come out as part of probate. Most of the advice on AAM is about what you should do, not what some people seem to get away with.

Is the person who received the money married?

If this becomes a tax issue, the length of time until then is the issue, as the penalties and interest from Revenue could make the amount due as large as the original amount.
 
Hi Not a tax adviser here.

My understanding is as follows.

1. Contacts need to place to confirm this is a Loan and NOT gift. ( Keeps all parties in clear at to whats going on)

2. If you get interested in free Loan. There is Technically a taxable benefit to you. That should be declared to revenue every year. I believe Revenue calculate the rate at the default rate 8% per year or the different of this figure minus the % you have agreed to pay.

example interest-free revenue calculate the benefit at 8% per year.

Low rate loan 2% - revenue rate 8% leave 6% taxable benefit t6o be payed

Their view is you have the benefit of the use of €250K so it needs to taxed.

Speak to a Good tax adviser about this and get contracts drawn up.


There is no 8% rate as once their is an official contract then this is an interest free loan. Tax is calculated on the interest foregone on the loan which at current deposit rates is well below the €3k yearly gift tax exemption.

The issue with the outstanding balance should the person who made the loan pass away is a more complex one. As the outstanding balance on the loan becomes as asset of the deceased estate and as such should be distributed as per their Last Will and Testament.

Should the person who made the loan want to ensure it remains an interest free loan even after they pass away should ensure that any contract they have with the person who received the loan has a clause inserted in the contract that this is actually a loan and that even after their passing it remains to be treated as a loan and whoever inherits their estate will be bound by the terms of the contract for this loan.
 
Thanks for contributions.

Red Onion - no the person was never married. I'm looking into this as the person receiving loan/gift is basically making her outgoings seems more than they are in order to gain an excessive maintenance contribution from her ex partner. (Her annual income is circa 100K and owner of other property) We are extremely doubtful that the sum of money is a loan - and could be a cover up of her own funds... to date we have circa 1 year's of accounts but it's all fudgey - sums going in and out of here and there and several account numbers In previous times her income was also under declared to revenue...) It's the last attempt at control from someone who is at best described as pernicious. I'm determined to explore all avenues to get to the truth and what is right.
 
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Ah, understood. It's not really the tax implications you're concerned about.

You do have the most interesting problems. I'm glad my life is simple!
 
Again, not a tax advisor, but I'm sure the revenue have seen this all before and will look at the bone fides of the transaction. If sister A gave a €250,000 interest free loan to sister B and sister B is repaying it every month, they will see it as a loan. If sister B just makes ad hoc payments every once in a while, they will see it as trying to cover up what is a gift and send her a bill for her CAT liability.

If it is a loan, it will continue to be payable to sister A's estate after her death unless it is gifted to sister B in her will.

If she is trying to say that this is a debt she is paying and needs more maintenance, she needs to show more regular repayments than she has so far.
 
Red Onion!!! I know!!
mad neighbours etc etc!!!I'm glad I have a flexible job to be able to spend time on my 'interesting problems'!

I'm trying to help out two people at the moment (Have another post running at present), both very close and dear to me. I hate to see people getting done over. One thing I know, a few years ago - this forum gave me gold and together with a number of others who gave me ideas and information I'm in a good position.

All my partner and I want is a simple and happy life doing our outdoors stuff, if this woman succeeds in crazy maintenance it prevents us buying a suitable family home, we drive two old bangers and have been saving like mad and yer one is in a high end development, a new car parked outside, trips galore and holidays and we had one night out this year so far to a comedy act! We should start our own!

sBarrett - she may be able to cover up lack of payments and say payments are suspended as she has to pay legal fees...

I'm like a crazy private detective at the moment trying to get answers and evidence!!

You wouldn't mind if it was the truth re maintenance and she was actually short of money, we'd have no hesitation in making sure the child was looked after; as it stands I spend a good chunk of my salary on my step child...and my own - they're treated as well as each other...he's in my will etc

Anyhow - all comments above are great as it gives me the sparks for questions!!!
 
It all sounds a bit silly...a €250k loan also results in €250k sitting in a bank somewhere. And nobody wants to be involved in a fraud type scenario. I’d be worried about getting my €250k back given the messy situation.

Repayments aren’t necessary for something to be a loan; if A and B say it’s a loan and document it as such, it’s a loan.
 
Gordon Gekko: I don't think the other (weathier and no offspring )sister will be worried about what sum she has given (It's possible she has given a chunk - but not all of the 250K). Surely a loan requires reasonable and regular repayments - otherwise it's a bluff to give a gift and a guise to gouge money out of a decent chap for another decade....
 
Not at all. A loan doesn’t require periodic repayments for it to be a loan.

You could come to me and ask for a €20k loan. I could say “no problem, pay me back whenever”.

I could also not chase it and I could leave it for years.

That doesn’t make it a gift...I still want it back.
 
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