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Interest free loan from parents

Posted 21 January 2016 under Tax Q&A


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Jo says:
19 January 2016 at 12:31

My parents are lending me R500k to assist in purchasing my first apartment. This is an interest free loan and we have a loan agreement that specifies that I have a set minimum amount that I have to pay on a monthly basis (therefore I would not deem this a donation). There is however no set period for the loan as I may be able to pay more than the minimum amount. The loan agreement has been vetted by a lawyer. My folks are over the age of 65 and the money will be deposited straight into the attorneys account when it comes to paying for the property. What are the tax implications for both myself and my parents?

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TaxTim TaxTim says:
19 January 2016 at 15:31

As long as you are paying them back within a reasonable time it should not affect your tax situation either way - make sure that you do settle the debt monthly.

Jo says:
20 January 2016 at 7:32

Would you term a reasonable time be say the same time period as I would have signed for if it was a bond with the banks ie 10 - 15 years?

TaxTim TaxTim says:
20 January 2016 at 9:03

It would, given that matches the period of why you need the loan. Your parents could each donate R100 000 a year to you as a donation which would be tax free. If you do this before February then they would each be able to donate R100 000 twice in 2016 (Tax yea ends Feb) and then this would actually mean they loaned you R100 000 only.

Jo says:
20 January 2016 at 14:46

Thanks, I have to repay the money so it doesn't make sense to make it a donation. Besides a loan agreement is peace of mind for both parties. Thanks again for all your help :)

TaxTim TaxTim says:
21 January 2016 at 8:32

Only a pleasure!


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