What are the tax implications of lending our son money to buy somewhere to live?

Property Clinic: What interest rate, if any, should we charge him?

What are the tax implications of providing a loan to our son for a house? My wife and I want to give him a loan to help him buy a house. What interest rate, if any, should we charge him? What are the tax implications for him and for us?

There is no requirement that you charge a specific rate of interest on the loan to your child. If no interest is charged, there is a deemed gift to your child each year. The deemed gift is based on the interest rate that you are losing out on, ie based on the demand deposit rate for that sum of money.

With deposit returns so low this rate is likely to be negligible. In addition, parents can each gift up to €3,000 a year to a child without any gift tax arising. Therefore, the first €6,000 of deemed interest could be covered by this annual gift exemption, unless you are also giving this annual cash amount to your child.

If you do decide to charge interest, at whatever rate you choose up to the normal lending rates, the interest earned from the loan will be subject to income tax, PRSI and USC, and will need to be declared on your annual income tax return for each year the loan remains outstanding.

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Suzanne O’Neill is a tax partner at RSM Ireland