Interest Free Loan From Parents To Buy Home & Tax Implications

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louthman2013

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Hello. I am in the process of purchasing a house, and my parents are willing to extend an interest free loan of about €140K to me. Most of the cost of the new home is from the part proceeds of the sale of my current home, so this is a "top-up" to bridge the gap. I am just wondering what are the Revenue Requirements (if any)that need to be satisfied to ensure this is a bona fide loan and not a gift; Do you simply have to be able to demonstrate a repayment schedule, or does it need to be underpined by a legal agreement? Does it matter for Revenue proposes that it is interest free? Thank you in advance for any help.
 
Even if they gave you a gift of €140,000, it would have no immediate tax implications, assuming that you had not received large gifts before.

Your parents could gift you up to €225,000 and it would be exempt from CAT.

In theory, Revenue could argue that you are getting an annual gift of around €9,000 a year, the value of the interest. The first €3,000 is exempt anyway. So you would be accumulating €6,000 a year towards your €225k exemption.

So, I suspect that if you repay the loan over time, it's unlikely to be of any interest to the Revenue.

If your parents subsequently make a gift to you, you could then ask the local Revenue office if you need to declare the notional gifts in the past.

What is more important is that you do actually put the terms of the loan in writing. I have seen cases where people have subsequently claimed that this loan was actually a gift. Merely noting in writing that it is a loan, that it is interest-free and repayable, is good practice.

If your parents were to die before the loan is paid off, the executor might claim that the repayments were simply payments of interest and that the full amount is still outstanding.
 
Brendan et Al

Thank you for your help. Problem is that I have already received parental gifts in the past, so this pushes me up against the threshold. I will get onto Revenue about this, good advice
 
louthman
I'm in a similar situation and was looking up this when I came across your post. Did you contact revenue and if so could you share the outcome?

Thanks
 
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