Family Loan Agreement (Ireland) (Loans)

A Family Loan Agreement () (Loans) in Ireland sets the amount advanced, the interest, the repayment schedule, and the security or guarantee backing the debt, and is shaped by the Consumer Credit Act 1995.

In Ireland, the distinction between a loan and a gift is legally and fiscally significant. A gift is a voluntary transfer of money or property without any expectation of repayment. A loan, by contrast, is an advance of money made on the understanding that it will be repaid, with or without interest. Where money is transferred between family members without a clear written record, Revenue Commissioners may characterise the transfer as a gift rather than a loan — with potentially significant Capital Acquisitions Tax (CAT) consequences if the amount exceeds the relevant Group threshold under CATCA 2003. The Group A threshold (parent to child) is EUR 400,000 (increased from EUR 335,000 by Budget 2025, effective 2 October 2024); the Group B threshold (siblings, aunts, uncles, grandparents, nephews and nieces) is EUR 40,000 (increased from EUR 32,500); and the Group C threshold (all other relationships) is EUR 20,000 (increased from EUR 16,250). CAT is charged at 33% on amounts above the applicable threshold. These thresholds are cumulative — all gifts and inheritances received from persons in the same group since 5 December 1991 must be aggregated when calculating exposure.

A well-drafted family loan agreement demonstrates that the transfer was genuinely intended as a loan, not a gift. The agreement should clearly record the principal amount, the agreed repayment schedule (whether in regular instalments or by a lump sum on a specified date), whether interest is payable and at what rate, and the borrower's obligation to repay. Revenue have indicated in published guidance that a bona fide loan must show evidence of an intention to repay — which a written agreement, combined with a record of actual repayments, provides.

Family loan agreements in Ireland may also have implications under the Succession Act 1965. Under section 63 of the 1965 Act, an advancement made by a deceased to a child during the deceased's lifetime may be required to be brought into account ('hotchpot') when the child takes a share of the estate on the deceased's death. A clearly documented loan agreement, as distinct from a gift, will be treated differently from an advancement for succession purposes.

The Statute of Limitations 1957 applies to family loan agreements in the same way as to any other simple contract: the lender has six years from the date of default to bring legal proceedings to recover the outstanding amount (or twelve years if the agreement is executed as a deed). Where a borrower makes a part payment or acknowledges the debt in writing under sections 56 and 58 of the 1957 Act, the limitation period is reset.

A family loan agreement should always be signed by both the lender and the borrower, dated, and witnessed. It is advisable to seek guidance from a solicitor or tax adviser where the sum involved is significant, where the parties are uncertain about the CAT implications, or where the borrower has other existing debts or financial difficulties.

For loans involving a family business, additional considerations apply. Where a family member is lending money to a family company rather than to another individual, the Companies Act 2014 imposes disclosure and approval requirements for loans to directors and connected persons. Section 239 of the Companies Act 2014 requires that loans to directors above a de minimis threshold be approved by the shareholders at a general meeting. The Companies Registration Office (CRO) is the statutory registry for company filings, and any charges over company assets securing a family loan may need to be registered with the CRO. These requirements apply regardless of the informal family nature of the arrangement.

A Family Loan Agreement in Ireland is needed in a wide range of situations where one family member provides financial assistance to another and both parties wish to confirm the arrangement is clearly documented, legally enforceable, and treated as a genuine loan rather than a gift.

You need a Family Loan Agreement when: a parent is lending money to a child to help purchase a first home or investment property and wishes to confirm the advance is treated as a loan (not an advancement or gift for CAT or succession purposes); grandparents are providing a financial 'leg up' to a grandchild for education costs, a business start-up, or a house deposit; siblings are lending money to one another to bridge a short-term financial gap; a family member is in financial difficulty and a relative wishes to help with a loan rather than a gift, confirming clarity about repayment expectations; a borrower is seeking an informal loan at a lower interest rate than a commercial bank would offer; or any family member is advancing a sum of money that exceeds the relevant CAT Group threshold (Group A: EUR 400,000; Group B: EUR 40,000; Group C: EUR 20,000, as updated by Budget 2025 from 2 October 2024) and the parties wish to demonstrate to Revenue that the arrangement is a loan.

From the lender's perspective, documenting the loan in writing is essential to protect the lender's legal rights. Without a written agreement, the lender may face significant difficulty demonstrating the terms of the loan if the relationship deteriorates and the borrower refuses to repay. It also protects the lender's estate — on the lender's death, the outstanding loan will form part of the estate assets, and the personal representative will need clear documentation to recover the debt.

From the borrower's perspective, a written agreement provides certainty about the repayment obligations and protects the borrower from subsequent claims that the loan was on different terms than agreed. It also avoids the risk of the lender (or the lender's estate, on the lender's death) claiming a larger amount than the borrower believed was owed.

From a Revenue and tax perspective, a written family loan agreement — combined with evidence of regular repayments — is the most effective way to demonstrate that a transfer of money between family members was a genuine loan and not a gift. This is particularly important where the amount transferred exceeds the relevant CAT Group threshold, or where either party has previously received gifts or inheritances from the other that, when aggregated, approach the threshold.

A family loan agreement is also important in business contexts: where a family member is funding a family business or a start-up company, a written loan agreement helps to clearly distinguish the family member's loan from equity (share capital), and confirms that the loan can be repaid to the family member on a priority basis ahead of other distributions.

Under the Central Bank Act 1971 and Central Bank (Supervision and Enforcement) Act 2013, the Central Bank of Ireland regulates financial agreements. Section 149 of the Consumer Credit Act 1995 governs personal credit. Revenue Commissioners apply stamp duty under the Stamp Duties Consolidation Act 1999. The Data Protection Act 2018 and GDPR Article 6 apply to personal financial data. The High Court of Ireland adjudicates financial disputes.

A thorough Irish Family Loan Agreement should contain a number of essential provisions to be legally effective and to achieve the practical objectives of both parties.

The parties clause identifies the lender and the borrower by full legal name, address, and relationship to each other (for example, parent and child, or sibling and sibling). Identifying the relationship is important for CAT purposes, as it determines the applicable Group threshold under the Capital Acquisitions Tax Consolidation Act 2003.

The loan amount clause states the principal sum being advanced in EUR, the date of advance, and the method of transfer (for example, bank transfer from the lender's account to the borrower's account). Keeping a clear record of the actual transfer of funds — for example, a bank statement — is advisable to corroborate the agreement.

The purpose clause (optional but advisable) states the purpose for which the loan is being advanced — for example, to assist the borrower with a house deposit, to fund a business, or to cover medical expenses. A clear purpose clause helps to demonstrate that the advance was made for a specific reason and is consistent with a genuine loan rather than a recurring pattern of gifting.

The interest clause states whether the loan bears interest or is interest-free. Where interest is payable, the rate should be stated (as a percentage per annum), the calculation basis (simple or compound), and the payment schedule (monthly, quarterly, or at the end of the term). An interest-free provision should be expressly stated.

The repayment clause sets out the repayment schedule — the amount and timing of each repayment instalment, or the date by which the full outstanding amount must be repaid in a single lump sum. Clear repayment provisions are essential: regular repayments are one of the clearest pieces of evidence that an arrangement is a genuine loan rather than a gift.

The default clause specifies what constitutes a default, the notice period required before the lender may demand repayment of the full outstanding balance (acceleration), and any applicable default interest rate. Given the family relationship, the parties may wish to include a dispute resolution mechanism — for example, mediation — before resorting to formal legal proceedings.

The CAT acknowledgement clause (optional but advisable for larger loans) should confirm that both parties are aware that the transaction is a loan and not a gift, and that neither party intends the advance to constitute an advancement, gift, or inheritance for the purposes of the Capital Acquisitions Tax Consolidation Act 2003 or the Succession Act 1965.

The governing law clause confirms that the agreement is governed by the laws of Ireland and that any disputes will be resolved in the Irish courts — the District Court (claims up to EUR 15,000), the Circuit Court (claims up to EUR 75,000), or the High Court (larger claims).

The signatures block should include the signatures of both the lender and the borrower, the date of signing, and the signature of a witness for each party. Both parties should retain a copy of the signed agreement.

The record-keeping note is an important practical addition. The lender should retain the signed agreement alongside bank statements confirming the transfer of funds and a log of all repayments received (with dates and amounts). These records are essential if the agreement is ever questioned by Revenue as a gift, if the lender's estate seeks to recover an outstanding balance after the lender's death, or if court proceedings are required to enforce repayment. The Revenue Commissioners may audit transfers between connected persons, and clear, contemporaneous documentation is the most effective protection against an adverse finding. The forms-legal.com Family Loan Agreement (Ireland) template covers the mandatory elements under Consumer Credit Act 1995.