The Government has not gone ahead with planned changes to the Capital Acquisitions tax (CAT) treatment of family loans. These plans, announced in the Finance Bill, would have taxed the interest on the loan, based on the borrowing rate rather than on the deposit rate as at present, but have now been scrapped.
If you give a loan to a family member of €200,000 to buy an apartment, CAT law deems that a gift to your child has occurred equal to the interest that you would otherwise have earned on the amount loaned.
But with interest rates currently very low for a number of years, CAT law had virtually no effect in taxing such a benefit.
The amount of any gift above €335,000 to a child, less the annual exemption of €3,000, is taxed at 33%.
A parent could lend €200,000 to a daughter to buy an apartment. The daughter intends to repay the parents over 10 years. This arrangement benefits the daughter because she will not have to pay interest on the loan which will mean she will get to own the apartment quicker than if she got a mortgage. Also, no legal fee will arise on getting a mortgage deed charged or removed from the property purchased. CAT will be chargeable on the interest on the loan but this will be covered by the annual exemption so no CAT payment would currently arise.
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