Close Relative Loans - How will this effect me?
With effect from 1 January 2024 a new mandatory Capital Acquisitions Tax (CAT) reporting obligation is imposed on the recipients of certain loans from close relatives.
This applies irrespective of whether any tax is due or not and is applicable to both new loans made from 1 January as well as existing loans.
This new requirement does not create any new tax liabilities but instead aims to provide Revenue with greater visibility in respect of loans between close relatives where the loans are either interest free or are provided for below market interest rates.
What loans are subject to this new reporting obligation?
A CAT return will be required where: a loan has been made directly or indirectly between close relatives, 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 1 day in a calendar year.
Who is considered a "close relative"?
A close relative of a person is defined as:
A parent of the person,
the spouse/ civil partner of a parent of the person,
a lineal ancestor of the person,
a lineal descendant of the person,
a brother or sister of the person,
an aunt or uncle of the person, or
an aunt or uncle of the spouse/ civil partner of a parent of the person.
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 €500k 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.
The €335k threshold must be considered annually.
Reporting Timeline
A gift arises on 31 December if no interest is paid by 30 June the following year. For example, a €1 million loan received on 1 January 2024, with no interest paid by 30 June 2025, must be reported by 31 October 2025.
Tip
Remember – Below Market Rate of Interest is defined as a rate below what a lender could reasonably expect from investing the funds instead of lending them, typically lower than commercial lending rate
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