I propose to take Questions Nos. 218 to 223, inclusive, together.
I am informed by Revenue that there may be gift tax implications depending on the circumstances in which a parent gives a loan to a child. Where no consideration is given by the child for the loan (i.e. interest-free loan), or where any consideration given is less than an amount related to the open market interest rate, the annual value of the loan to the child may be treated as a taxable gift. The value of the loan is determined under section 40 Capital Acquisitions Tax Act 2003 as “the best price obtainable in the open market” for the use of the loaned money. The current best financial institution interest rate at the end of each year for which the loan is outstanding is used to determine the best price obtainable in the open market.
However, if the annual value of the free use of a loan is less than €3,000 (known as the ‘small gift’ exemption), the gift each year is exempt from gift tax provided the child has received no other gifts in the same year from the same parent. If this annual value exceeds €3,000 then only the excess amount each year is treated as a taxable gift. However, gift tax only becomes payable when the total value of all taxable gifts and inheritances taken by the child from his or her parents exceeds the Group A tax-free threshold which is currently €320,000. A tax rate of 33% applies above this threshold.
As there is no fixed statutory rate of interest for gift tax purposes, but a rate that varies automatically with current market rates, the matter of consultation with the Department of Finance about the annual rate used does not arise. There is no basis, therefore for proposing the application of a statutory rate of interest.
I am also informed by Revenue that the amount of benefit-in-kind to be charged to income tax (under section 122 of the Taxes Consolidation Act 1997) where loans at preferential rates of interest are made by employers to their employees is determined by a fixed statutory rate of interest that is adjusted from time to time by way of the Finance Act. While, the standard such rate is currently 13½%, a lower rate of 4% applies in the case of home mortgage loans. An employee in receipt of a preferential loan is charged to income tax on the difference between the amount of interest that would have been payable on the preferential loan if interest had been paid at the fixed statutory rate and the amount of interest, if any, actually paid on the loan.
Where the employer and employee are related and the preferential loan is made in a personal capacity from personal resources, the benefit-in-kind provisions are not applied. However, depending on the value of the loan made, the prevailing market interest rate and the applicable tax-free group threshold, gift tax may be payable.
The tax code currently allows for the making of interest-free loans between parents and their children subject to a potential liability to gift tax. As with most taxes, gift tax operates on a self-assessment basis subject to Revenue compliance checks and audit. Where Revenue identifies arrangements that are not in accordance with the relevant legislation it takes appropriate corrective action.
In relation to Question 13551/19, I am informed by Revenue that an estimate of the value of assets transferred as inheritances from Capital Acquisitions Tax (CAT) returns is shown in table 2 in the following at link
https://www.revenue.ie/en/corporate/documents/research/capital-taxes-profile.pdf. Revenue has also advised me that the published figure for 2017 is now updated to €3.6 billion and a tentative estimate for 2018 is €4.4 billion.
The Central Bank publishes data on household wealth at an aggregate rather than an individual level in the Quarterly Financial Accounts the most recent being for Q3 2018 https://www.centralbank.ie/docs/default-source/statistics/data-and-analysis/financial-accounts/quarterly-financial-accounts-for-ireland-q3-2018.pdf?sfvrsn=4
No comparison between the Central Bank data and CAT returns is available.
The Central Statistics Office (CSO) conducted the first Household Finance & Consumption Survey (HFCS) in 2013. While a comparison of the value of assets as indicated in the survey against CAT returns is not available, the Revenue report at the above link (page 8) includes a comparison of the number of CAT returns to the number of (indicated) inheritances and gifts.
Overall, the analysis of the HFCS suggests that there are more gift or inheritance transactions occurring than reported in returns filed with Revenue. However, the difference is likely to be explained by the majority of these transactions not being liable to CAT due to the various reliefs and exemptions that are available in respect of the tax.