Tax treatment of family loan and CU loans for property

L

lonelyplanet

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Hi,
I purchased a derelict property some years back and have secured planning permission to rebuild it. This property is in a good rental location and don't see any issues with renting or selling the property when complete.

I have tried to secure mortgage for this property with Ulster Bank as they are lender for another property I have which has an approx LTV of 30%. Eventually underwriters indicated that "computer says NO" . This has been a long process of providing valuations etc and then told to go away and personally feel they want to get rid of me and my tracker !!

I have secured a loan from family and a credit union loan to proceed with the rebuild and I am wondering what do I need to provide to Revenue with respect to loans when doing returns.

The CU loan: Can i claim any interest relief ?

Family loan: I wont be paying that back immediately and will start paying back in 2 years.

I want to ensure I understand the process with respect to receiving a private loan and how that is seen in eyes of Revenue.

Thanks
 
Hello,

In my view there is no restrictions regarding where you get the loans from.

You must register with the PTRB in order to avail of the interest deduction.. I think currently 85% or 100% if to HAPs .. but the interest deduction is only available on letting the property .. so that will only be available once the property is renovated.

I would point out that you should have loan documentation in place with family, agreeing term of loan, the principal and the interest rate and how the interest is calculated and when payable and what recourse the lender has if you miss payment.. otherwise revenue could view the entire loan as gift or just the free use of money as a gift ..

I’m not sure on the following- someone else might be able to provide clarity .. the lender will be subject to income tax on loan but is there a withholding tax obligation???? Really not sure about this aspect ...
 
Thanks Mary55555,
Yes understand that interest can be deducted once property is rented but wondering if interest can be deducted if a CU loan and / or family loan.

Agree that loan documentation would need to be put in place and wondering if there is an agreement one can download and modify?
 
As mentioned in my first line .. I don’t think there is any restrictions. So I would claim the interest on family and CU loan providing all usual conditions satisfied..

Don’t know where you would down load templates. I think a simple doc would suffice. Is the doc from the CU complex? Maybe use that as template ...

In relation to family loan .. an interest rate below market rate could be viewed as gift..
 
Yes the interest is deductible. Any chance of figures. Is it wise for family to loan on an asset not owned by them.
 
You won't have a requirement to deduct withholding tax on interest payment where you, as an individual, borrow it and it is not paid to a non-resident. The recipients will be taxable on the interest.

You may have a reporting requirement to the Revenue in respect of the interest but I'm not 100% on that.
 
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