Centrelink has rules about how much of your assets you can ‘gift’ before your pension will be affected. If you lend money to a family member the loan will be assessed as part of your assets and could affect your pension entitlement. This includes if you take out a mortgage over your home and loan the money to family.
How to avoid tax problems with loan to family member?
To avoid tax problems with a loan to a family member, be sure there’s a written loan agreement stating the amount of the loan, the interest rate, and the repayment terms. The interest rate should be at least the applicable federal rate for the month the loan is made. Simple loan agreement forms can be found on the Internet.
Is it bad to lend money to family members?
Many people are happy to lend money to their loved ones, especially to children and grandchildren. But before stroking the check, review the tax rules. The tax consequences vary greatly depending on the terms of the loan. A small change in the terms can mean a big difference in taxes and penalty. Too often, family loans are informal arrangements.
What are the tax implications of lending money?
The property should be immediately outside your estate, as it will be sold for market value. However, the value of the debt will remain an asset of your estate and IHT may be payable on your death, depending on the value of you and your wife’s other assets. At current levels, you can give away up to £650,000 between you without a tax liability.
What kind of tax do I pay on loan to my daughter?
As the property is worth less than £125,000, your daughter won’t have to pay stamp-duty land tax. Neither will you have to pay income tax on the loan repayments if the loan is interest-free rather than being rent. Next there is inheritance tax (IHT). The property should be immediately outside your estate, as it will be sold for market value.
