Mandatory Tax Filing Requirements in respect of Loans from Close Relatives

Background

From 1 January 2024 a new mandatory filing obligation is imposed on the recipients of certain loans from close relatives.

The new provision, which can be found in section 46(4A) CATCA 2003 as amended by section 80 of Finance (No. 2) Act 2023, does not only apply to new loans made since that date but can also apply to existing loans.

The new reporting obligations will need to be considered by clients and their advisers each year where the client has received a loan from a close relative which is outstanding.

What loans must be reported?

A CAT return will have to be filed by the recipient of a “specified loan” from a “close relative”.

Who is considered a “close relative”?

Broadly speaking a “close relative” is a person within either the Group A or Group B CAT tax free threshold category.

These are set out in section 46(4A)(a) as being:

• a parent of the person,
• the 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,
• a brother or sister of a parent of the person, or
• a brother or sister of the civil partner of a parent of the person.

Certain “look through” provisions must also be applied in relation to loans made by or to private companies, including where the shares in the company are held via a trust, to determine if the loan is ultimately being made to a person by that person’s close relative.

The holding of any shares in a private company is sufficient for the look through provisions to apply, no de minimis level of shareholding is specified for these purposes.

What is a specified loan?

A specified loan is a loan made to a person by a close relative of that person.

Loan is defined for these purposes as any loan, advance or form of credit. There is no requirement that the loan must be in writing for it to be reportable.

The recipient of a specified loan must file a CAT return in respect of it if:

• the person is deemed to have taken an annual gift in respect of the specified loan in accordance with the use and enjoyment provisions contained in section 40(2) CATCA 2003,
• no interest has been paid on the loan within 6 months of the end of the relevant period in which the gift is deemed to have been taken, and
• the balance outstanding on the specified loan(s) exceeds €335,000, which is the current group A tax free threshold amount, on at least 1 day in the relevant period.

The relevant period is 1 January to 31 December in the preceding year as per the terms of section 40(1) CATCA 2003.

All specified loans must be aggregated so if a person has one than one loan from different close relatives the amount outstanding on each in the relevant period must be added together for the purposes of determining if the threshold amount to €335,000 has been exceeded or not. If interest has been paid on one of the loans it would not however need to be included for these purposes.

The timing of the interest payment (i.e. within 6 months of 31 December each year) may need to be looked at closely in 2024 as interest paid in the first 6 months of this year may not be taken into account so that such loans could remain reportable ones.

The section does not specify any minimum amount of interest which must be paid. Interest would need however to be paid in each relevant period, and not just on a once off basis, for the loan not to be reportable in respect of that particular period. Also, the interest must actually be paid and not just accrued.

The reporting requirement is triggered if the aggregate loan balance exceeds €335,000 at any time in the relevant period.

When must a return be filed and what information must it contain?

From 1 January 2024, a CAT return must be filed by a person who is deemed to have taken a gift in respect of the use and enjoyment of a specified loan made by a close relative.

As the use and enjoyment provisions deem such a person to have received the benefit on 31 December each year, the CAT return would need to be filed no later than 31 October the following year. The earliest that the new return will need to be filed in respect of specified loans from close relatives will therefore be 31 October 2025.

The return must include the following information,

• The name, address and tax reference number of the person who made the loan,
• The balance outstanding on the loan, and
• Any other information which the Revenue Commissioners may reasonably require.

Tax reference number for this purpose means a PPS number or tax registration number in the case of an Irish resident person. It is helpful to note that a non-resident person which does not have an Irish tax number can use their foreign tax number for these purposes and that there is no need to apply for an Irish tax number for them.

Conclusion

Back in 2021 changes to the way the benefit arising on a loan from a family member would be calculated were announced but never enacted. Instead, we now have reporting obligations in respect of such loans which clients and their advisers will have to deal with on an annual basis.

Revenue having this information is likely to result in greater scrutiny of loan arrangements with family members in the future so clients and their advisers should review the paperwork in place for and the circumstances surrounding each loan now to be fully prepared for this.

The RDJ Tax Team are available to provide expert advice in this regard should you have any questions.

Contact details:

Eoin Tobin | +353 21 4802741 or email here.