New Mandatory Tax Filing for Loans from Close Relatives

Loans from Close Relatives – Introduction

Starting January 1, 2024, there’s a significant change in the tax landscape concerning loans from close relatives in Ireland.

A new mandatory filing obligation (“CAT”), as per section 46(4A) CATCA 2003, amended by section 80 of Finance (No. 2) Act 2023, comes into effect.

This change isn’t limited to new loans post-2024 but also encompasses existing loans.

Who Needs to Report?

The obligation to file a CAT return falls on recipients of a “specified loan” from a “close relative”.

The definition of a “close relative” includes a parent, sibling, lineal ancestor or descendant, or a civil partner of a parent, among others.

This definition extends to loans made by or to private companies where shares are held directly or through a trust.

Defining a Specified Loan

Any loan, advance, or form of credit from a close relative is considered a specified loan.

Interestingly, there’s no requirement for the loan to be documented in writing.

When is a CAT Return Required?

A CAT return is necessary if:

• The loan is deemed a gift per section 40(2) CATCA 2003;
• No interest is paid within six months after the end of the year the gift is deemed to have been taken;
• The outstanding loan balance exceeds €335,000 on any day within the relevant period (1 January to 31 December of the preceding year).

Aggregation and Interest Payment

If you have multiple loans from different close relatives, you must aggregate them to see if the total exceeds €335,000.

However, if interest is paid on a loan, it doesn’t count towards this total.

Note that interest must be paid, not just accrued, and this must happen each year to avoid the reporting requirement.

Filing a Return

The first CAT return under this new rule will be due by October 31, 2025.

This return should include the lender’s name, address, tax reference number, the outstanding loan balance, and any other information the Revenue Commissioners may require.

Loans from Close Relatives – Conclusion

Given that this change could lead to increased scrutiny of family loan arrangements, it’s wise to review existing loans for compliance.

Ensure your documentation and loan terms are in order to meet these new reporting requirements.

This new mandate underscores the need for meticulous financial planning and record-keeping, especially in family financial matters. 

Remember, this isn’t just a one-time assessment; it’s an annual obligation that requires continuous monitoring and reporting. 

Final thoughts

If you have any thoughts on this article on Loans from Close Relatives, or Irish tax matters in general, then please get in touch.