Loan to a Family Member & CGT

W

weston68

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I'm thinking of giving a loan (rather than a gift) to a family member. The amount will be above the Capital Gains Tax limit based on our relationship. As this is a loan they will be repaying it to me. I'm just wondering about any CGT liability on them or me in the following four scenarios:
(1) They return it to me (without interest) in the current tax year
(2) They return it to me (without interest) in the next or subsequent tax year
(3) They return it to me with interest in the current tax year
(4) They return it to me with interest in the next or subsequent tax year
 
It is not clear to me why either CAT or CGT should arise in this transaction for the following reasons:

  • You have not disposed of an asset so there is no gain arising for you.
  • Your family member does not have 'beneficial possession' of the cash- it is effectively a short term loan, repayable in due course.
To look at it another way, if the family member was to receive a loan from a bank, neither CGT nor CAT would arise. The bank would obviously charge interest and pay Corporation Tax on the profit. Similarly, if you charge interest, you would be liable to income tax on the investment income. However, CGT or CAT shouldn't arise. It would be different if you were giving the money away to the other person without any intention of recovering it- then both CGT and CAT would be at issue.

I'd be eager to have any misconceptions on my part re the foregoing view cleared up by someone who knows better- I may be totally wrong!
 
IMO there would be no CAT or CGT implications in any of the 4 scenarios above

In addition, IMO, there are no income tax implications in either of the first 2 scenarios

There would be income tax implications if you were to charge your relative loan interest as the interest is additional income in your hands which is, of course, taxable in your name.

The interest is taxable in the year it is received.
 
The relation could return the money without interest and give you a gift below the tax threshold instead and there would be no tax.
 
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