Tax on Gifts & Loans From Your Parents for a Deposit
Sep 13, 2023
Given the challenges of saving for a house deposit in Ireland, some parents are eager and in a fortunate position to help their kids purchase a home. Here are two of the most common ways homebuyers receive funds from their parents:
- The parents directly provide a cash gift.
- The buyer takes out an interest-free loan from their parents.
We’ll outline the tax implications of both and why you might choose one over the other.
Receiving a Gift Directly From Your Parents & Tax
During a calendar year any individual can gift up to €3,000 to another. This means that each parent could theoretically gift €3,000 to their child and their child’s partner for a total of €12,000 without triggering any tax obligations.
After the €3,000 per year allowance, a child can receive a total of €335,000 from their parents in their lifetime from gifts or inheritance, after which they need to pay Capital Acquisitions Tax (CAT) at 33%. If they receive more than €3,000 from a parent they need to report it to Revenue, however they won’t need to pay tax unless they exceed the lifetime allowance.
If you want to see how much you might be able to borrow with deposit help from your parents, get an estimate on the most expensive home you can afford or calculate your monthly "repayment capacity" then try the Lively calculator!
Taking an Interest-Free Loan From Your Parents & Tax
To avoid eating into the lifetime gift allowance parents will sometimes lend their child money without a set repayment date or an expectation of interest to be paid. If the loan is not repaid before the parents pass away the remaining unpaid loan amount is written off and considered as part of the child's total inheritance amount.
Revenue considers the yearly interest not charged as a gift itself. Every year the loan has not been paid back, the parents are seen to be providing a gift equal to the interest rate they could earn for the same funds in a deposit bank account. Given how low bank account interest rates are even six-figure sums are unlikely to breach the €3,000 yearly gift allowance and so Revenue don't often collect a tax bill.
Both Revenue and your mortgage lender will require the terms of the loan in a contract and signed by all parties involved. Your lender may also ask you to create a “Deed of Confirmation” with your parents. This legal document will state that the bank has precedence to the property in case legal or financial issues arise in future.
Using a Temporary Gift Letter for Approval in Principle
Unfortunately a lender won't grant you mortgage Approval in Principle without a full deposit saved including enough for Stamp Duty and other costs. However if you will have the full amount saved in a matter of months you can speed things up by using a gift letter from a family member that states they will cover the difference even if you don't actually intend to use the gifted amount. Generally the family member won't even be required to send you the funds, the gift letter will suffice to assure the lender that the funds are available.
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