Willie Penrose (Longford-Westmeath, Labour)
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Question 157: To ask the Tánaiste and Minister for Finance if he proposes amending the law in order to clarify the tax implications of receiving an interest free loan from an acquaintance and the responsibilities of the borrower in such a case vis-À-vis the Revenue Commissioners; and if he will make a statement on the matter. [2313/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am informed by the Revenue Commissioners that the position is, as follows:

Where an individual receives an interest free loan from his or her employer or from his or her spouse's employer a charge to income tax arises. Prior to 2004, the onus was on the employee to inform the Revenue Commissioners of the benefit accruing. However, since 2004, the employer collects the tax due on the benefit under the PAYE system.

A charge to income tax does not arise where an individual receives an interest free loan from an acquaintance who is not his or her employer.

As regards any potential capital acquisitions tax (CAT), the interest element of an interest free loan from an acquaintance is deemed to be a gift, generally valued by reference to prevailing interest rates.

In addition, as the Deputy may be aware, CAT legislation contains certain exemptions and tax free threshold amounts in respect of inheritances and gifts. These are the annual small gift exemption and the relationship threshold.

Under the annual small gift exemption, gifts of up to an aggregate value of €3,000 from any one person in any year are exempt from CAT. Where gifts are received from a number of individuals, the €3,000 exemption applies to the gifts from each person.

As regards the relationship threshold, each person is entitled to his or her CAT tax-free group threshold on top of the annual small gift exemption. The amount of this threshold is dependent on the relationship between the person receiving the gift and the person who made the gifts.

There are currently three relationship groups which are:

The responsibilities of a person receiving an interest free loan in relation to the Revenue Commissioners are that where the combined effect of gifts, including the notional interest element of interest free loans (and the value of each of which is in excess of the annual €3,000 exemption per donor), exceeds 80% of the relevant group threshold, the person is required to make a self-assessment Gift Tax return.

In calculating whether a person has received benefits of at least 80% of his or her tax-free group threshold, any other gifts and inheritances that the person might have received from within the same relationship group (i.e. from CAT Group C — "unrelated persons") since 5 December 1991 are also taken into account.

While CAT rules, as well as the rules governing all major tax heads, are kept under review in the context of the annual Budget and Finance Bill process, I have no plans to change the law at present.