I recently purchased a second home last May as an investment for my coming retirement. To do this I had to secure a small loan of €44,500 from my brother to complete the sale. The loan was agreed to be given to me on a temporary basis, interest free, with a view to repaying the full amount as soon as I receive my tax-free lump sum from my pension next year. What are the CAT [capital acquisition tax] small gifts rules governing this loan agreement between my brother and me. Can I just pay back this loan as soon as my pension lump sum becomes available with no tax liability to Revenue?
If you receive an interest-free loan from your brother, the interest-free element would be considered a benefit and you may be obliged to pay tax on it. The relevant tax date for this benefit will be December 31st each year until the loan is paid off. The value of the benefit is the rate of return the funds would generate if they were invested on deposit (the rate of return the lender could receive from an investment on deposit).
For CAT purposes, a gift from your brother falls under the Group B threshold. (Please note, if the value of a gift or inheritance is below a particular threshold one is not required to pay tax.) The Group B threshold also includes a parent, sister, niece, nephew, grandparent, grandchild, lineal ancestor or a lineal descendant of the person making the gift. The current Group B threshold stands at €32,500. However, please be aware that this is a lifetime limit and all gifts or inheritances received under this group will need to be aggregated to ascertain if the threshold is exceeded.
A small gift exemption is available to a beneficiary (the person receiving the gift) in respect of a gift taken in any tax year from any one disponer (the person making the gift). This annual exemption is currently €3,000 per annum, ie where the value of the total gifts received, in a tax year, from any one disponer is below this small gift exemption, the gift should not be subject to tax. In addition, the CAT group thresholds will not be affected.
Therefore, if the value of the deemed benefit received from your brother is €3,000 or less, per annum, it should qualify for the small gift exemption of €3,000 and it will not reduce your Group B threshold. If it exceeds €3,000 in a calendar year, the excess will reduce your Group B threshold, and the deemed benefit will become taxable when the threshold (based on an aggregate of all gifts or inheritances received under the Group B threshold) has been exceeded.
In a related query, if my brother who is living in England since 1980 gifts my son €3,000 under the small gift allowance, is my son exempt from CAT on that small gift received? Because he is living in England I'm not too sure if he is allowed to under Irish tax laws. He still has an Irish passport and also a UK one. He also has a house in Ireland.
Where, at the date of the gift or inheritance, either the disponer or the beneficiary is resident or ordinarily resident in Ireland then worldwide assets comprised in a gift or inheritance are subject to Irish CAT rules. If neither the disponer nor the beneficiary are resident or ordinarily resident in Ireland, at the relevant date, CAT will apply to Irish situate assets only.
To be resident in Ireland you must be present in the State for a minimum of 183 days in a calendar year or spend 280 days or more in Ireland over a period of two consecutive tax years. Assuming your son is Irish resident at the date the gift is received then the gift should qualify for the annual small gift exemption of €3,000.
Susan Blake is tax manager with RSM Ireland
