How does Close Relative Loan(s) affect me?
There is a NEW REPORTING OBLIGATION for Capital Acquisitions Tax (CAT) effective from 1st January 2024. This obligation is imposed on the recipients of certain loans from close relatives. This applies to both new loans made from 1st January and existing loans, irrespective of whether any tax is due or not.
This new requirement aims to provide Revenue with greater visibility in respect of loans between close relatives where the loans are provided either interest free or at below market interest rates.
The new requirement does not create any new tax liabilities.
Loans subject to the new reporting obligation.
A CAT return will be required where a loan has been made directly or indirectly between close relatives where:
- no interest has been paid or a below market rate of interest has been paid on the loan during the calendar year,
- no interest has been paid within 6 months of the end of said calendar year,
- and the total balance outstanding on the loan(s) exceeds €335,000 on at least one day in a calendar year.
Definition of “close relative”.
A close relative of a person is defined as the person’s
- parent
- spouse/ civil partner of a parent
- sibling
- lineal ancestor
- lineal descendant
- aunt or uncle
- aunt or uncle of the spouse/ civil partner of a parent
Below Market Rate of Interest
Below Market Rate of Interest is defined as a rate below which a lender could expect from investing the funds instead of lending them, typically lower than commercial lending rate.
Loans Involving Companies
Loans made to or by private companies (controlled by five or fewer persons) are considered as made between close relatives. For example, an interest-free loan from a relative’s company is reportable if it exceeds the €335k threshold.
Multiple Loans
All interest-free or below market rate loans from close relatives are aggregated to determine total loan balance. If total exceeds €335k, it is reportable.
Reporting Timeline
A gift arises on 31 December if no interest is paid by 30 June the following year. For example, a €400k loan received on 1 January 2024, with no interest paid by 30 June 2025, must be reported by 31 October 2025. The €335k threshold must be considered annually.
As always, consult your accountant/tax adviser.
Mark Fielding – July ’24.
