loan from family to help with deposit

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paxalo

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Hello

Not sure if this is the correct forum. We have been renting for years and have very little savings. A very close and financially well off friend has offered us €20k towards a deposit and we plan on adding to this every month over the period of a year and then applying for a mortgage.

This would be a a long term loan over 30 years and interest free - the length of our prospective mortgage. She has said she doesn't want the money back at all but we would like to repay it.

She is ready to transfer the money to us but we are worried about the implications with revenue. Will we or she be liable for tax?

Should we drip feed it into a few accounts or just accept the lump sum via electronic transfer? or ask for some cash or what?

With respect, please spare the personal opinions about borrowing from friend, I'm just interested in the tax liability and what way is best to approach this. Thank you kindly.
 
If she is unrelated, then it could be treated as a gift and subject to CAT.

€20,000 @4% would be €800 so it would be below the annual exemption from CAT.

It's extremely unlikely that Revenue would try to maintain that it's a gift of €20k, but to be absolutely safe, why doesn't she lend each of you €3,000 now which is the annual exemption from CAT.

Then on 1 Jan 2017, she can lend you a further €3,000 each.

So in the worst possible scenario, the maximum gift would be €20,000 - €12,000 exemptions or €8,000.

Mind you, if you can't show any capacity to save, you will probably find it hard to get a mortgage.

Brendan
 
Accepting that what you have stated is correct there will not be any tax implications if your friend transfers the €20k to the 2 of you jointly at €6000 per year. Just for clarity do up some form of an agreement in case of a dispute in years to come so as all sides including relatives (should someone die) would be clear what the loan/gift was for and how it is to be returned. 30 years is a long time and things happen.
 
thats great information thank you.

Can i also just ask...to speed up the process is it possible for her to gift 3k each to my parents and for them to in turn pass it onto me? or can i only accept 3k from one source per year?

@brendan...With regards to obtaining a mortgage, other half has gotten promotion and significant raise and we moved to a cheaper rental so fingers crossed we can save a lot more. Does proof of paying rent for years account for nothing in the mortgage application process? Do they factor it in at all?
 
paxalo said:
Can i also just ask...to speed up the process is it possible for her to gift 3k each to my parents and for them to in turn pass it onto me? or can i only accept 3k from one source per year?
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You could but you are complicating it.

The most important thing will be your accrued savings and showing how this was achieved and showing as regular savings. You need to really save save save. Showing how you paid your rent will be secondary but a help. Showing that you save regularly/pay rent as due/clearing your Cr.card when due shows the bank that you can be trusted and disciplined enough to pay a mortgage. Pay off Cr card debt as it falls due. Any other high interest loans held by either of you?.
 
thank you very much

No we have no loans at all. We had some savings but we had to use them on a car, We only have a few grand left now.

My thinking was that I could get a lump into the credit union. Then add €500 monthly to it and then the bank would only require 6 months statements for the mortgage so it would appear that we had always saved this amount and hadnt received a gift at all.

is that very flawed thinking!
 
Yes, you can have money gifted to your parents and in turn they gift it to you. Just document it all.

The bank want to see an ability to repay the mortgage. That is, if interest rates go up 2%, can you afford to pay the higher rate. You have to show them an ability to do so at the application stage. Rent paid counts as part of this ability to repay. It is one of the biggest areas that people slip up in when applying for a mortgage; people on good salaries but not really saving, thinking they can just redirect the surplus income they are currently carelessly spending into paying for the mortgage. It doesn't wash with the banks anymore.


Steven
www.bluewaterfp.ie
 
Sorry Folks, but there is a fair bit of questionable advice in this thread so far.

The loan from your friend should be documented as being for €20,000, interest free, and repayable over an agreed period. A loan is not a gift, but it constitutes "free use of property" for tax purposes. The value of the benefit is the opportunity cost to your friend of not having the €20,000. The accepted proxy is call deposit rates (virtually zero). Let's call it 1% for the sake of prudence. The deemed benefit is therefore €200 a year (far below the Small Gift Exemption of €3k/€6k/€12k). Clearly you must monitor call deposit rates, but you should be fine.

Onward gifting (I give €10,000 to X and X gives it on to Y) is a complete no-no. It's dealt with by way of the anti-avoidance rules for what are called "connected dispositions".
 
Thank you for this advice. Can I ask the following:

So say we get 20k from her this year. We can offset 3k each as a tax free gift so therefore our loan is €14k. And we calculate our interest etc and pay revenue. The following year...after repayments, our loan balance is say €13,000...can we say she is gifting us another 3k each and take 6k off the outstanding loan balance and repeat this step every year till its clear? for purposes of a tax liability. Even if it meant she physically transferred us the 6k and we transferred it back to be knocked off the loan?

Hope that makes sense
 
There are a number of ways to tackle this. The simplest would involve your friend gifting €10k to each of you. €3k is covered by the Small Gift Exemption, and then €7k of your Group C "stranger" threshold of €15,075 is used up (assuming you haven't already used it).

My understanding is that you wish to repay this over 20 years. Then it's not a gift, it's a loan. As outlined in my earlier post, there should be no tax leakage and you just do it.

If your friend is open to the idea of potentially gifting the €20k, in broad terms a loan with circa €6k written off each calendar year would work (once you take account of the free use of property €200 point I mentioned previously).

Basically, no tax leakage should arise. There's no payment to Revenue. There isn't even a tax return.
 
Gordon Gekko said:
There are a number of ways to tackle this. The simplest would involve your friend gifting €10k to each of you. €3k is covered by the Small Gift Exemption, and then €7k of your Group C "stranger" threshold of €15,075 is used up (assuming you haven't already used it).

My understanding is that you wish to repay this over 20 years. Then it's not a gift, it's a loan. As outlined in my earlier post, there should be no tax leakage and you just do it.

If your friend is open to the idea of potentially gifting the €20k, in broad terms a loan with circa €6k written off each calendar year would work (once you take account of the free use of property €200 point I mentioned previously).

Basically, no tax leakage should arise. There's no payment to Revenue. There isn't even a tax return.
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A loan where it's agreed at the outset that it will not be repayable and €6k is to be written off each year, is NOT a loan! It's simply trying to recharacterise a gift as a loan, to obtain a tax advantage. It's exactly the type of messing section 811 is drafted to deal with, however without at least one additional zero on all of the numbers it's unlikely to rear its head in reality.
 
Jon Snow said:
A loan where it's agreed at the outset that it will not be repayable and €6k is to be written off each year, is NOT a loan! It's simply trying to recharacterise a gift as a loan, to obtain a tax advantage. It's exactly the type of messing section 811 is drafted to deal with, however without at least one additional zero on all of the numbers it's unlikely to rear its head in reality.
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Jon, I'm surprised that you would state the obvious in such a manner. I never mentioned an upfront agreement regarding write-offs.

That's why in such circumstances, the loan is documented as repayable on demand and interest free with no agreement regarding periodic write-offs. The lender then reflects on his/her position annually and decides whether to write-off a portion of the loan or not. Nothing wrong with that.
 
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SBarrett said:
Just document it all.
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What kind of documents Revenue would require to confirm the money transfer came from parents? Signed agreement? Notary stamped contract? Ownership of transaction source account? Just a declaration letter from parents? How to prove that gifter is Group A?
 
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cocoa123 said:
What kind of documents Revenue would require to confirm the money transfer came from parents? Signed agreement? Notary stamped contract? Ownership of transaction source account? Just a declaration letter from parents? How to prove that gifter is Group A?
Click to expand...

As I posted previously, you CANNOT do this. Connected gifts are recharacterised because they are a sham.
 
The quate was wrong. Sorry. I mean, if parents gift their own money, not the donee's. What docs the donee would need to obtain to prove it?
 
Is a 30 year mortgage a good idea? Will they get a mortgage if they haven't saved the deposit themselves.
 
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