Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

Let me go through how the tax benefit of an interest-free loan is calculated, what rate is applied and whether Revenue provides guidance for the types of real-life scenarios to which the Deputy is alluding. Section 40 of the Capital Acquisitions Tax Consolidation Act 2003 deems a person to take a gift in each year that he or she has the free use of property. The value of the gift is calculated by reference to the difference between any consideration paid by the beneficiary for the use of the property and the best price obtainable on the open market for the use of similar property for that year. Generally, the calculation of the best price obtainable on the open market for the use of the property is carried out by reference to the value of the gift received.

In the case of an interest-free loan, the person who receives the loan is deemed to take a gift for capital acquisitions tax purposes in each year he or she has the benefit of the loan. The gift is the interest-free element of the loan rather than the loan itself. The person will self-assess the value of this gift in determining whether any liability to capital acquisitions tax arises. I am advised by Revenue that it currently accepts that the value of the benefit for capital acquisitions tax purposes is the rate of return the loan amount would generate if it were held on deposit. This is confirmed in Revenue guidance. The legislation does not currently prescribe any benchmark rate to be applied by a taxpayer when determining the value of the benefit of an interest-free loan.

To be clear, I am not making changes to the current tax regime for interest-free loans. Rather, we are seeking to put in place a reporting obligation in respect of very substantial interest-free loans provided to family members.