Is a loan from a family member subject to tax?

Q&A:Are there tax implications when a person gets a loan with or without interest from a family member?

Mr PB, Galway

In general, loans between family members are conducted on an informal basis. That being the case, it is rare that they come to the attention of Revenue.

If the loan is interest-free, Revenue is unlikely to be interested; however, if interest is being paid, then there is income accruing to the family member making the loan and that should be declared as income to the Revenue in an annual return.

Do I have to tell Revenue about sale of shares?

In relation to tax rules when capital assets, specifically shares, are sold:

1. Is it necessary to notify Revenue when the gain in one year is less than the allowed annual gain of €1,270?

2. Is it necessary to declare an actual annual loss to Revenue in order to carry over that loss?

3. Can a loss be carried forward for more than one year?

Mr GR, Dublin

Many people who sell small holdings of shares at a profit that is below the personal exemption threshold or, worse still, at a loss tend to feel that they do not need to inform Revenue as there is no tax owing. However, that is not the case.

Revenue requires that a return be made in relation to any disposal of shares (or any other capital asset) regardless of whether a gain is made. If you file an annual tax

return, the details can be included in that submission.

If, like many small shareholders,

especially pensioners, you do not generally file a tax return, you are obliged to file a capital gains tax form CGT1, giving details of any gain or loss on the shares. This form must be returned by October 31st of the year following the year in which the transaction took place.

This submission deadline is very different for the deadline for payment of any tax owing – if that is the case, liabilities for sales in the first 11 months of the year must be settled by December 15th while any gains in the last month of a year have to be paid by the end of the following month (January of the year after the gain arises).

The CGT1 form will allow you to file details of the transaction, any gain arising and whether that falls under the €1,270 annual exemption threshold.

It also allows you to detail any losses arising on transactions in that given year.

The importance of that is that losses can

be carried forward; clearly, Revenue will want to know how such losses arose in the first place.

In relation to your final question, a loss arising on capital gains can be carried forward until such time as the loss is offset by future capital gains. There is no time limit for that.

Can you clarify your advice about gift tax?

You wrote some time back about gift tax and the annual tax-free thresholds. I think you missed the point Mr MA was raising, which was also a question in my mind, so I was reading your answer carefully.

That question is – does the €3,000 annual tax-free gift come into the computation of the €250,000 lifetime limit of gifts to a child?

I presume it does not – ie, you could gift €3,000 per year for example, 10 years, and then gift €250,000 on your death (or otherwise) all tax free.

So the lifetime limit is €250,000 plus as many annual €3,000 as you manage to do?

Maybe you could clarify this please.

Mr P.G., email

Sorry if there was any confusion. I thought I had gone through it in some detail.

The situation is straightforward. First there is an annual exemption – currently €3,000. This can be paid by any donor to anyone, not necessarily a family member.

It can be paid each year to the same people or to any other people and no tax bill arises either for the person giving the “gift” or for the recipient(s).

The only exception is where Revenue suspects that exempt gifts are being paid to a person or persons to be channeled to a third party who has already availed of the exemption. For instance, if you “gift” your child €3,000 this year and then also gift a similar sum to other people with a view to them in turn gifting your child, a liability will arise.

Leaving that scenario aside, the €3,000 “small gift exemption” is entirely separate from any liability under the lifetime threshold (currently €250,000 between a parent and a child).

So, as you suspect, you can gift a sum to an individual under the small gift exemption annually for as many years as you choose

and it will not in any way affect your “lifetime” gift tax (Capital Acquisitions Tax), which in relation to a child of yours is €250,000.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.