Free use of property and interest free loans
Legislation - Section 40, Capital Acquisitions Tax Consolidation Act 2003.
A charge to tax arises where a person has the use and enjoyment of property either for no consideration or for less than full consideration. If, the "free" use is on-going, the benefit is deemed to be taken on 31 December each year. The following examples explain how the benefit is calculated.
Example 1
Market Value of Benefit in “free” use case involving a loan:
Joe gives an interest free loan of €100,000 to his nephew John on 1 January. The commercial rate of interest is say 12%. John is deemed to take a gift of €12,000 on 31 December.
He is also deemed to take a gift each year, on 31 December, until the loan is repaid and each such deemed gift is taken into account for aggregation purposes. If the loan is repaid during the year, the date of the deemed gift for that year is the date of repayment. If the loan was repaid after six months the value of the gift for that year would be €6,000.
Example 2
Market Value of Benefit in "free" use case involving accommodation:
Anne gives the use of her house worth €200,000 to her cousin Colette. The annual market rent is €15,000. Colette pays Anne €5,000 per annum. Colette is deemed to take a gift of €10,000 on 31 December each year that she has the use of the house and each deemed gift is taken into account for aggregation purposes.