borrowing from a friend

N

nutcase

Guest
I am planning to borrow €80,000 from a friend , full amount to be repaid with interest (rate of 3 per cent compound interest per anum) in 5 years time at which stage I will be in funds. Will there be cgt,cat or income tax implications for me or my friend because of this unusual arrangement ?Thanks in advance.
 
Your friend may be subject to either income tax on the 3% pa or CGT on the opverall gain depending on how the money is transferred. You should ensure that when taking a loan of this magnitude from a friend you have legal and tax advise on the matter
 
Thanks Ned . I fully intend to seek legal and tax advice. I'm just using AAM as a sounding board first. Just on your point about tax on interest just to broaden the question hypothetically if my friend were to borrow me the money interest free would that mean there would be no tax implications at all on either side ?
 
My understanding is that if you were to borrow the money interest free there would be CAT implications. Effectively you would have the free use of property (money) and CAT would apply.
 
Thanks tkane-any idea what that would break down for the €80,000 borrowed over 5 years ?
 
OK. Even though this comes within the scope of CAT I dont believe there would be a liability on this sum. For the following reasons:
CAT is gift tax. The gift in this instance is not the €80,000 but the lend or free use of the €80,000 interest free. So the actual gift is the amount of interest that could be earned if it was on deposit. So assuming the full €80,000 was given up front and assuming a 5% interest rate then the benefit would be worth €4,000. You have a small gift exemption of €3000 which leaves a taxable value of €1,000. On top of this you have a CAT group threshold of €20,740 for 2010 for a gift from a friend. The group threshold means that you wont pay CAT on a gift from a friend until all their gifts combined exceed the threshold and this will not happen in the case of an €80,000 loan over 5 years as described above. hope this helps
 
Thanks tkane for that advice-hadn't logged in for a week or so so hence my delay in acknowledging your helpful post
 
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