[ad_1]
Mom and Dad’s SOFT Bank Loans face a tax crackdown.
The upcoming changes will mean that many of those who receive lump sums to help them put down a down payment for a home will have to report to Revenue for the donation.
The change was introduced in the finance bill and has been described as having “onerous tax implications” for those who receive a cash gift from their parents.
Accountants argue the move will add a huge administrative burden for taxpayers, but there will be little return for the Exchequer.
Until now, parents’ donations of funds to children for a house deposit or renovations were assessed for tax purposes as if the money was on deposit. This is in cases where parents do not charge their children for the loan.
Tax was due on the amount of interest money could earn by being deposited into a deposit account.
With interest on savings close to zero, there was little or no tax impact.
This is an attempt to assess what tax professionals call the use of free money.
But the finance bill proposes that the loan still be treated as a taxable gift.
But the change, first reported in The Irish Times, would see the person receiving the money from their parents treating the money as a loan and giving them an interest rate on the loan.
This will require them to determine how much they would pay in interest that they would pay for a bank’s funds.
The interest amount will be a taxable donation.
The change, which is expected to take place early next year, is expected to involve a lot of paperwork.
Revenue said: âThe amendment to Article 62 of the Finance Bill, as published, proposes a change from the current practice of determining the value of an interest-free or low-interest loan.
“The amendment provides that in the case of such loans, ‘the best obtainable price in the free market’ is to be determined by reference to the best obtainable rate in the free market for borrowing an equivalent amount of money.”
However, most of those who get a subsidized loan from their parents are unlikely to have to pay taxes.
In fact, children are entitled to receive up to ⬠3,000 each year under the rules for exempting small gifts from tax on the acquisition of capital.
If the loan exceeds the exemption for small gifts of ⬠3,000, it will have to go outside the tax exemption threshold of ⬠335,000 that a parent is entitled to give to children as a gift or as an inheritance.
If the loan exceeds the tax exemption threshold of ⬠3,000 from a parent to a child, then this must be calculated each year and recorded in the Treasury.
And if the amount exceeds the small gift exemption amount one year, it will have to go outside the tax exemption threshold of ⬠335,000 that a parent is entitled to leave to children under rights laws. of succession.
Chartered Accountants Ireland professional tax manager Norah Collender said the change would place an “onerous tax burden” on people, but mean little additional income for the Exchequer.
She said this point had been made by the accounting bodies to Revenue officials.
She said it would be an administrative and complicated burden for those who get a loan from their parents to determine what interest rate should apply on such a loan and then keep all the backup documents in case of questions by Income. .
Revenue said it will issue guidance on the change once the finance bill is enacted and the amended legislation is passed.
[ad_2]