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Is it legal to give a "private" personal loan?

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  • 25-09-2020 9:32pm
    #1
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭


    How would a person go about giving a loan? I mean in the sense to do it above board. There are illegal moneylender so what differentiates the illegal moneylenders from those genuinely giving money to help out with the understanding it will be supposed to be paid back. (whether or not it eventually is is a different tangent)



    I'm not talking about a fiver for the bus home. I'm talking about giving either a sizeable personal or business loan, say to a family member, zero or very low interest with a proper repayment schedule.



    I say "very low interest" to mean if the recipient wanted to pay interest to the amount that the giver would have otherwise earned in a bank.


    I'm not talking about collateral or credit risk. I mean whether it's strictly legal and would there be tax implications? Would it qualify as some sort of "gift" that they would be getting the money at well below market rate?



    In the case of a loan to set up or improve a business, the recipient would be able to write off the interest paid to a normal bank.


«1

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    #2
    Irishphotodesk
    Registered Users Posts: 1,896 ✭✭✭Irishphotodesk


    To quote Shakespeare, “ neither a borrower nor a lender be”

    The primary problem with an unregistered loan, if the person stops making repayments what route of recourse do you have to get the money owed?

    I believe a parent can gift 10k to a child but don’t know if you are related to the loanee, I would guess that if you are happy to gift the money and they are happy to accept/declare the stumbling block would be revenue and any tax implications either of you could face.


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    #3
    The Hound Gone Wild
    Registered Users Posts: 255 ✭✭The Hound Gone Wild


    If it's over €3000 there are tax implications for the borrower if they make no repayment efforts. If you pass away the executor of your estate can chase the balance of the loan.

    If it's under €3000 you can give it as a free gift.

    You need professional advice.


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    #4
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    The Hound Gone Wild wrote: »
    If it's over €3000 there are tax implications for the borrower if they make no repayment efforts. If you pass away the executor of your estate can chase the balance of the loan.

    If it's under €3000 you can give it as a free gift.

    You need professional advice.




    I shouldn't need professional advice for a simple hypothetical question - would it probably be ok to do so? Are you somehow an illegal moneylender if you do it? Even if you are charging little or zero interest.



    People can pretend that in this hypothetical world that there is no credit risk etc. and that everything goes to plan. I am only saying that to prevent discussion going off on a tangent.


    Note - I am not seeking any kind of definitive answer. I just wondered if anyone had gone through something like this and how they did it. It is a hypothetical scenario.


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    #5
    Irishphotodesk
    Registered Users Posts: 1,896 ✭✭✭Irishphotodesk


    Donald Trump wrote: »
    I shouldn't need professional advice for a simple hypothetical question - would it probably be ok to do so? Are you somehow an illegal moneylender if you do it? Even if you are charging little or zero interest.



    People can pretend that in this hypothetical world that there is no credit risk etc. and that everything goes to plan. I am only saying that to prevent discussion going off on a tangent.


    Note - I am not seeking any kind of definitive answer. I just wondered if anyone had gone through something like this and how they did it. It is a hypothetical scenario.

    I have received 10k from my parents - as a dig out to help clear debts, it was given on a repay it when you can type of situation, never heard of any tax implications, I told my accountant where the money came from and what it was for.
    I think I had to get a statement from my parents outlining the transfer for the accountant to have proof of where the money came from.

    In the past my car died and my parents offered their car for me to use (I still have it ...11yrs on , ownership was transferred after a few weeks) again, I’m unaware of any tax implications, I haven’t had to make any payments and everything was declared through my accountant (I made sure to tell them at the time).

    All of these events were a number of years ago, more stringent anti money laundering legislation has since been brought in.... it might be best for either lender or borrower to talk to an accountant and/or solicitor to get correct advice on how best to proceed.


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    #6
    CBear1993
    Banned (with Prison Access) Posts: 1,397 ✭✭✭CBear1993


    .........the first pieces of advice you received above, some amount of pencil pushers and PC brigade on here.

    People in this day and age still get “gifts” from their family members or parents upto all sums of money, even €100K.

    You don’t need “legal advice”. I know first hand of friends who have went out and bought houses with big sums of “gifts” and the only back up they needed was a piece of paper/letter signed by the person giving the gift to say they are passing on these funds. And the solicitors and all parties involved, including banks like AIB were fine with this.

    If it’s good enough for the top brass it’s good enough for you to give a gift in whatever way you wish to do so. Revenue never came near the people in question above.

    Not everything has to be declared and putting your hand up in this country despite what a lot of board warriors on here would have you think, good neighbor law abiding citizens. Sure don’t they take enough money off of us!


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    #7
    bobbyy gee
    Banned (with Prison Access) Posts: 1,306 ✭✭✭bobbyy gee


    Lend money lose friend and money


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    #8
    Irishphotodesk
    Registered Users Posts: 1,896 ✭✭✭Irishphotodesk


    CBear1993 wrote: »
    ...... the first pieces of advice you received above, some amount of pencil pushers and PC brigade on here.

    People in this day and age still get “gifts” from their family members or parents upto all sums of money, even €100K.

    You don’t need “legal advice”. I know first hand of friends who have went out and bought houses with big sums of “gifts” and the only back up they needed was a piece of paper/letter signed by the person giving the gift to say they are passing on these funds. And the solicitors and all parties involved, including banks like AIB were fine with this.

    If it’s good enough for the top brass it’s good enough for you to give a gift in whatever way you wish to do so. Revenue never came near the people in question above.

    Not everything has to be declared and putting your hand up in this country despite what a lot of board warriors on here would have you think, good neighbor law abiding citizens. Sure don’t they take enough money off of us!

    The highlighted part above I find strange, are you aware of all of your friends dealings with revenue? Or is there a chance these friends may not be telling you every detail of their finances, just what they want you to hear.

    I also take exception to your post suggesting the first posters are either PC brigade or pencil pushers....I’m neither.


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    #9
    CBear1993
    Banned (with Prison Access) Posts: 1,397 ✭✭✭CBear1993


    Irishphotodesk wrote: »
    The highlighted part above I find strange, are you aware of all of your friends dealings with revenue? Or is there a chance these friends may not be telling you every detail of their finances, just what they want you to hear.

    I also take exception to your post suggesting the first posters are either PC brigade or pencil pushers....I’m neither.

    ThTs why I said the first few, I thought yours was the only one that was a valuable contribution.


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    #10
    The Hound Gone Wild
    Registered Users Posts: 255 ✭✭The Hound Gone Wild


    "CBear1993 wrote: »
    the first pieces of advice you received above, some amount of pencil pushers and PC brigade on here.

    People in this day and age still get “gifts” from their family members or parents upto all sums of money, even €100K.

    You don’t need “legal advice”. I know first hand of friends who have went out and bought houses with big sums of “gifts” and the only back up they needed was a piece of paper/letter signed by the person giving the gift to say they are passing on these funds. And the solicitors and all parties involved, including banks like AIB were fine with this.

    If it’s good enough for the top brass it’s good enough for you to give a gift in whatever way you wish to do so. Revenue never came near the people in question above.

    Not everything has to be declared and putting your hand up in this country despite what a lot of board warriors on here would have you think, good neighbor law abiding citizens. Sure don’t they take enough money off of us!

    ?

    You can receive 330k from your parents tax free over your lifetime.

    Take advice from people like this and someone will end up committing tax fraud.

    Professional advice.


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    #11
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    I don't think anyone has addressed the OP's question yet. I don't know the answer myself for sure.

    Donnie.

    Isn't there a new peer to peer lending online company. Is that something similar, dont know if they have a banking licence?

    I think it would help the OP (if I understand the OP correctly) if we ignore the relationship between the borrower and lender. Basically, could I loan you 50k at 5% interest and for you to pay me back over 3 years. Would you be able to claim the interest as a business expense and I claim it as income?


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    #12
    Bubbaclaus
    Registered Users Posts: 4,461 ✭✭✭Bubbaclaus


    CBear1993 wrote: »
    the first pieces of advice you received above, some amount of pencil pushers and PC brigade on here.

    People in this day and age still get “gifts” from their family members or parents upto all sums of money, even €100K.

    You don’t need “legal advice”. I know first hand of friends who have went out and bought houses with big sums of “gifts” and the only back up they needed was a piece of paper/letter signed by the person giving the gift to say they are passing on these funds. And the solicitors and all parties involved, including banks like AIB were fine with this.

    If it’s good enough for the top brass it’s good enough for you to give a gift in whatever way you wish to do so. Revenue never came near the people in question above.

    Not everything has to be declared and putting your hand up in this country despite what a lot of board warriors on here would have you think, good neighbor law abiding citizens. Sure don’t they take enough money off of us!

    Who is "they"?


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    #13
    antoinolachtnai
    Registered Users Posts: 9,787 ✭✭✭antoinolachtnai


    Lending money is a form of investment.

    You can lend money if you want to. If you operate a money lending business then you likely need a licence but you should get professional advice if you do this frequently.

    There is in general no tax implication if you receive repayments of the capital on a loan. However the interest is A form of income and subject to tax.

    If you are paying back a loan received and used for business purposes you would expect to be able to get a benefit in relation to income tax.

    If you dont pay back money loaned to you there is a capital acquisitions tax implication for you.

    If you are owed money but not paid it back, you may be able to offset this loss against future capital gains tax.

    If any of the above are a concern for you then you should seek professional advice.

    I would strongly suggest having some form of loan agreement in place.


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    #14
    TheDalioLama
    Registered Users Posts: 31 ✭TheDalioLama


    The Hound Gone Wild wrote: »
    ?

    You can receive 330k from your parents tax free over your lifetime.

    Take advice from people like this and someone will end up committing tax fraud.

    Professional advice.

    +1.

    The signed letter the above poster is referring to is something the lender seeks before approving the loan. It doesn't mean you will not owe inheritance tax down the line.

    OP, I was pondering the same a while back and the below article was one of the better explanations I came across

    https://www.google.com/amp/s/www.irishtimes.com/business/personal-finance/dealing-with-an-interest-free-loan-from-the-bank-of-mum-and-dad-1.3232993%3fmode=amp


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    #15
    Akrasia
    Registered Users Posts: 22,399 ✭✭✭✭Akrasia


    Irishphotodesk wrote: »
    The highlighted part above I find strange, are you aware of all of your friends dealings with revenue? Or is there a chance these friends may not be telling you every detail of their finances, just what they want you to hear.

    I also take exception to your post suggesting the first posters are either PC brigade or pencil pushers....I’m neither.
    Revenue tend to leave private citizens alone until they die when their estate goes through ptobate. An unexplained asset such as a free house or large cash deposit will have tax implications for the estate and can delay the next of kin from receiving the proceeds of the estate for years


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    #16
    homer911
    Registered Users Posts: 5,118 ✭✭✭homer911


    The Hound Gone Wild wrote: »
    ?

    You can receive 330k from your parents tax free over your lifetime.

    Take advice from people like this and someone will end up committing tax fraud.

    Professional advice.

    Its currently €335k actually, it was increased in the last budget.
    https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-thresholds.aspx
    If its a single lump-sum gift, then you are also allowed an additional €3k. If its up to €3k gift paid annually, then its completely ignored for the purposes of the €335k threshold. Only gifts over €3k are counted. The €3k annual allowance does not apply in the case of an inheritance

    I was recently cajoled into lending a family member and her partner money for a deposit on a house (the parents were not in a position to help). As far as the bank and the solicitor was concerned it had to be a gift although informally (but in writing) its a loan with monthly repayments (which are being made). I am certainly nervous that the payments may stop at any time and the amount is significant.
    From a tax pov, it created issues that I never found out the outcome of: the family member is not married to her partner and joint purchase of a property between unmarried partners where the capital contribution is different amounts to a capital gift from one to the other based on Revenue's rule of unrelated parties, and is theoretically taxable. Dont know if they found a way around this..


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    #17
    JustAThought
    Registered Users Posts: 5,324 ✭✭✭JustAThought


    CBear1993 wrote: »
    .........the first pieces of advice you received above, some amount of pencil pushers and PC brigade on here.

    People in this day and age still get “gifts” from their family members or parents upto all sums of money, even €100K.

    You don’t need “legal advice”. I know first hand of friends who have went out and bought houses with big sums of “gifts” and the only back up they needed was a piece of paper/letter signed by the person giving the gift to say they are passing on these funds. And the solicitors and all parties involved, including banks like AIB were fine with this.

    If it’s good enough for the top brass it’s good enough for you to give a gift in whatever way you wish to do so. Revenue never came near the people in question above.

    Not everything has to be declared and putting your hand up in this country despite what a lot of board warriors on here would have you think, good neighbor law abiding citizens. Sure don’t they take enough money off of us!



    The problem is if you are caught. If you are a beneficiary in a will ( eg a non related inheritance from a different faMily member or non related person) you will find yourself filling out probate benificiary forms for probate and signing legally binding declarations to say that you have or have not been the recipient of cash gifts in the past x years. Inheritance and revenue tax have different allowances and requirements and tou can bet the forms are sent to both. GDPR gives you some hope as they cannot just casually call your bank for your bank details for the past 20 years ( like in the US) but if there is a paper trail - and bear in mind there is now an unaccounted for deposit threshold that has to be reported to revenue by the banks ( anti money laundering acts). You could find yourself quickly up to your eyeballs in a lot of issues if you did not manage it ‘properly’.


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    #18
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    Deleted User wrote: »
    I don't think anyone has addressed the OP's question yet. I don't know the answer myself for sure.

    Donnie.

    Isn't there a new peer to peer lending online company. Is that something similar, dont know if they have a banking licence?

    I think it would help the OP (if I understand the OP correctly) if we ignore the relationship between the borrower and lender. Basically, could I loan you 50k at 5% interest and for you to pay me back over 3 years. Would you be able to claim the interest as a business expense and I claim it as income?




    Exactly. I'm not bothering about quotes from Shakespeare etc. (although thanks to people for making an effort to answer the question even if they did get sidetracked).


    If I give someone a genuine loan interest free, or very small rate (and that will also distinguish it from a moneylender charging above legal rates) could/would I technically be doing something that could get someone into trouble?



    The recipient might be my parent or child, or it might be the son of the prince of Nigeria who will give me a portion of his fathers USD 42,000,000,000 fortune once it is transferred. I'm not worried about that.


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    #19
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    Irishphotodesk wrote: »
    I have received 10k from my parents - as a dig out to help clear debts, it was given on a repay it when you can type of situation, never heard of any tax implications




    Yeah, this kind of thing.


    I know it is an aside, but people mentioned CAT implications for the recipient if it is not paid back. I don't want to drag things off on a tangent as this is a new query, but if the person genuinely can't pay it back for a good while and Revenue come knocking on the door what would happen to them? If they haven't got the money to pay the loan back at that point in time would Revenue sting them for gift tax?


    I remember a story in the paper a while back about a couple who scammed an old lady. I think it was in Donegal. She helped them out and they later tried to claim it was a loan rather than a gift. I'd imagine that they hadn't gone to revenue to pay their CAT at the time! I think they lost and were ordered to pay the money back. (obviously whether that happened or not is a different matter)


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    #20
    antoinolachtnai
    Registered Users Posts: 9,787 ✭✭✭antoinolachtnai


    If the borrower can’t pay the loan, how does the Revenue think they’re going to pay the CAT? In these situations the Revenue is typically trying to collect VAT and payroll taxes as its first priority.

    The issue is most likely to arise where debt is restructured in some sort of arrangement with creditors.


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    #21
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    antoinolachtnai wrote: »
    If the borrower can’t pay the loan, how does the Revenue think they’re going to pay the CAT? In these situations the Revenue is typically trying to collect VAT and payroll taxes as its first priority.

    The issue is most likely to arise where debt is restructured in some sort of arrangement with creditors.




    That was my question. Although Revenue aren't typically concerned with your ability to pay as long as you have something in your name that could be sold.


    And I was also thinking about your second point but I'm not sure how that would be any different. Think of the likes of these people in the celtic tiger mansions who paid no rent for years and some of them then got write-downs to stay in their houses. I don't think they could be chased up for CAT. I'd know that if I was a lender and I wrote, say, 100k off a loan as part of a restructuring, I would want that to be the limit of what the borrower could reasonably afford. I'd be a bit pissed off if they could manage 70k write-off but I had to go to 100k so that they could pay Revenue 30k or the written off amount!!


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    #22
    Mooooo
    Registered Users Posts: 8,611 ✭✭✭Mooooo


    Afaik if you give a loan and they pay it back in instalments or whatever way there is no issue. If they don't pay it back there may be gift tax or CAT liability on their side on the amount and if you charge interest I assume there may be some form of income tax on that. But if it's a straight forward you loan em 10k and they pay back say 200 over 50 months there would be no issue. A paper trail may be handy to prove reciever isn't getting a gift if audited I guess. If you have an accountant I assume they'd tell you exactly but that would be my understanding.


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    #23
    Heres Johnny
    Closed Accounts Posts: 2,738 ✭✭✭Heres Johnny


    Watch judge Rinder if you want to see the real issues about giving a personal loan to friends and family!


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    #24
    Spanish Eyes
    Registered Users Posts: 15,943 ✭✭✭✭Spanish Eyes


    My view FWIW is give a loan if you want, but treat it in your head as a gift never to be repaid. Some will repay some won't. That's the reality.


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    #25
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    Spanish Eyes wrote: »
    My view FWIW is give a loan if you want, but treat it in your head as a gift never to be repaid. Some will repay some won't. That's the reality.




    That has nothing to do with the questions raised. Assume what you said to be true.



    Now suppose that 10 years later the recipient wins the lotto and you are surprised to get repaid the principal and a small few quid extra thrown in to thank you and cover the pittance that it would have earned in the bank. Are you now an illegal moneylender?


    I can pay the tax on the "interest" as if it was normal income I earned or got from an investment. I am not talking about that. I am asking about the strict rules concerning the situation I described. Not talking about P2P lending etc.


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    #26
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    Mooooo wrote: »
    Afaik if you give a loan and they pay it back in instalments or whatever way there is no issue. If they don't pay it back there may be gift tax or CAT liability on their side on the amount and if you charge interest I assume there may be some form of income tax on that. But if it's a straight forward you loan em 10k and they pay back say 200 over 50 months there would be no issue. A paper trail may be handy to prove reciever isn't getting a gift if audited I guess. If you have an accountant I assume they'd tell you exactly but that would be my understanding.




    So I wonder what would happen in the case of, as another poster described - a "pay it back when you can" type of situation....perhaps they'd have to start paying back a Euro a week or something when revenue come knocking! Or maybe Revenue would still charge them and you would have to fight Revenue to get the money back if/when it was repaid.


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    #27
    bobbyy gee
    Banned (with Prison Access) Posts: 1,306 ✭✭✭bobbyy gee


    it's legal but not wise


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    #28
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    bobbyy gee wrote: »
    it's legal but not wise




    So where is the technical line for you being a moneylender?


    There must technically be some regulation. There are legal registered moneylenders. That implies to me that if you are not registered then you aren't supposed to be lending. Given that assumption, where is the line drawn? Is it on the amount, the rate, the relationship between the people?



    So if you give the loan and you aren't registered then you could potentially be doing something you shouldn't be. I'm sure if you were sitting before a judge and had your evidence showing the scenario I proposed earlier, then you wouldn't get in serious trouble.



    I wonder then where is the line between giving someone a loan and "investing" in them. For example, there are ways in the US where people "invest" in other people by paying for their education in exchange for a future return (with the person lending assuming full risk!).


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    #29
    [Deleted User]
    Posts: 5,369 ✭ [Deleted User]


    Donald Trump wrote: »
    How would a person go about giving a loan? I mean in the sense to do it above board. There are illegal moneylender so what differentiates the illegal moneylenders from those genuinely giving money to help out with the understanding it will be supposed to be paid back. (whether or not it eventually is is a different tangent)



    I'm not talking about a fiver for the bus home. I'm talking about giving either a sizeable personal or business loan, say to a family member, zero or very low interest with a proper repayment schedule.



    I say "very low interest" to mean if the recipient wanted to pay interest to the amount that the giver would have otherwise earned in a bank.


    I'm not talking about collateral or credit risk. I mean whether it's strictly legal and would there be tax implications? Would it qualify as some sort of "gift" that they would be getting the money at well below market rate?



    In the case of a loan to set up or improve a business, the recipient would be able to write off the interest paid to a normal bank.

    You are supposed to be licensed to loan money. No license, no legal means. It's covered under the Moneylenders Act, 1933 and theres an offence of acting without one.

    Whether a mate lending you the bus fare is included or not I'm unsure. The law is pretty black and white but there may be case law or amendment I don't know about.
    Donald Trump wrote: »
    there are ways in the US where people "invest" in other people by paying for their education in exchange for a future return (with the person lending assuming full risk!).

    That's not usually a loan, generally that's part of an employment contract whereby they cover the costs and you either pay it back from future earnings or they get you in graduating. Presumable at better terms for them. It would be through the books, tax compliant and very clearly documented.


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    #30
    Donald Trump
    Registered Users Posts: 19,372 ✭✭✭✭Donald Trump


    Niner leprauchan wrote: »
    You are supposed to be licensed to loan money. No license, no legal means. It's covered under the Moneylenders Act, 1933 and theres an offence of acting without one.

    Whether a mate lending you the bus fare is included or not I'm unsure. The law is pretty black and white but there may be case law or amendment I don't know about.




    That's the kind of answer I was hoping for which was quoting an act. It kind of ties in with what I had assumed.



    So it would seem that, technically, a person giving a "pay it back whenever you have it" loan is acting illegally. They would probably get away with it in front of a judge if it is a genuine case of a one-off to help someone rather than doing it as a business, but they are still doing something technically wrong.


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    #31
    [Deleted User]
    Posts: 5,369 ✭ [Deleted User]


    Donald Trump wrote: »
    That's the kind of answer I was hoping for which was quoting an act. It kind of ties in with what I had assumed.



    So it would seem that, technically, a person giving a "pay it back whenever you have it" loan is acting illegally. They would probably get away with it in front of a judge if it is a genuine case of a one-off to help someone rather than doing it as a business, but they are still doing something technically wrong.

    I'm going by an act from 1933 here. As I said above, new legislation or case law may have dealt with your question. Google may well have the answer at a more reasonable time tomorrow.


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