Close Relative Loans – New Capital Acquisitions Tax (CAT) Reporting Requirements
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 aims to provide Revenue with greater visibility of loans made between close relatives where the loans are either interest free or are provided for below market interest rates.
Who is a Close Relative?
A close relative is a person within either the Group A or Group B CAT tax free threshold category which includes:
- 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.
There are certain “look through” provisions that must be applied 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 recipient by a close relative. The holding of any shares in a private company is sufficient for the look through provisions to apply.
What Loans must be Reported?
A loan is any loan, advance or form of credit and need not be in writing. The recipient of a loan will be required to file a CAT return where:
- A loan has been made directly or indirectly between close relatives,
- No interest has been paid on the loan within 6 months of the end of the calendar year, and
- The total balance outstanding on the loan exceeds €335,000 on at least 1 day in a calendar.
All specified loans must be aggregated so if a person has more than one loan from different close relatives the amount outstanding on each loan 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.
What Information must be Reported?
The CAT return must include the following information in respect of reportable loan balances:
- 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.
Case Study
A father and mother provide an interest-free loan of €400,000 to their son on the 31 March 2024. The son made no repayments on the loan in 2024.
On the receipt of an interest free loan of €400,000, the son is deemed to receive an annual gift of the free use of this money on the 31 December 2024. Irish Revenue value the annual gift at the highest rate of return the funds would generate if they were invested on deposit. Based on current interest rates applicable to a standard demand deposit account, one of the highest rates of return for a deposit account is 1.5%. As such, the value of the annual gift of notional interest is approximately €6,000 per year. After applying the annual small gift exemption of €3,000 per parent (€6,000 in total), the son is exempt from paying CAT on the notional annual gift in respect of this loan.
However, as the balance of the loan on 31 December 2024 exceeds the tax-free threshold of €335,000, the son is still required to file a CAT return under the new reporting provisions irrespective of the fact that no CAT is payable. The CAT return must be filed with Revenue no later than 31 October 2025.
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