Everyone at some point in our lives has had a timely need for money that we have not been able to meet, for example to buy a car, to pay a debt, etc. In these cases we have no choice but to go to external financing by banks or credit institutions or to use the family loan.
This last figure is quite common, but it happens that there is a lot of ignorance about how a loan should be made in favor of family members so that it is legal and so that it does not cause any problems with the Treasury, which could be considered a fraud or an undercover loan.
To be able to understand this figure well, it is essential to distinguish between donation and loan, then we can deepen other issues such as the formalization of the loan, interests and possible implications in case of inheritance. Let’s see everything in more detail.
Difference between donation and loan between individuals
If you want to help a family member financially, or it is you who needs that help, there are two ways to do it: through a donation or a loan.
What is it and how is a donation made?
This legal figure implies giving someone money in a selfless way. That is, that money is not going to have to be returned.
In this case, the Inheritance and Donations Tax applies. Each Autonomous Community regulates the percentage that must be paid as a tax, also giving the circumstance that less interest is paid the closer the degree of kinship is.
In order for everything to be legal, the donation must be made before a Notary Public Deed and then the corresponding tax must be settled.
What is the family loan and how is it made?
As the name implies, this is about lending money to a family member, with the peculiarity that such money must be returned.
Although a loan between relatives without interests is possible, it is important that the legal business is exactly the same as with a normal and current loan. That is, the borrower must periodically return the agreed amount.
In addition, it is convenient to make the payment of the fees so that it is recorded that it has been made. The most common is to resort to bank transfer.
How to make a loan between individuals?
There may be a conflict between the family loan and the Treasury if the business is not properly documented, for it is or always good that you make a contract, especially if it exceeds a certain amount of money.
The document must necessarily include:
- Place and date of conclusion of the contract.
- Identification of the parties.
- Amount slow.
- Applicable interests If there are no interests, this will be expressly specified.
- Time and way to return the money.
- Signature of the participants.
Check out this example of a loan agreement between individuals drawn up by the OCU to get an idea of what this document should look like.
In this case, the duly completed Model 600 must also be submitted to the Treasury, which refers to Patrimonial Transmissions and Documented Legal Acts.
Although for the peculiarities of the loan there is nothing to pay as a tax, it is essential to pay it off. For this, the Model 600 and three copies of the contract must be presented at the Treasury.
It is essential to keep this documentation, along with the proof that the loan installments have been paid, until the total repayment of the debt and even a little more. You will not have another way to prove that it is a properly formalized family loan in case the Treasury claims something from you.
Can the loan be made with 0% interest?
When lending money, it is normal for the borrower to pay back the amount borrowed plus an additional amount for interest, but in the family loan it does not necessarily have to be so.
One of its peculiarities is that there is no obligation to charge interest. In fact, the usual thing is that in the case of a family relationship who lends the money does not make any profit. Just leave that money to help the other person.
Our legislation does not prevent in any case that a family loan can be made without interest, but requires that this condition is expressly included in the contract.
What happens if the lender dies before the full repayment has been made? Can it influence inheritance?
The loan between family members and inheritance may give rise to doubts, but in reality the situation is not too complicated. If, before returning all the borrowed amount, the person who has lent the money dies, the remaining amount must be paid to the heirs.
In the event that the person who has received the loan is the heir of the deceased, he will no longer have the obligation to return the amount that corresponds to his share of the inheritance. In fact, if he were the only heir, the debt would be extinguished directly.
If the opposite occurs and the borrower dies, then it will be his heirs who must pay the outstanding amount.
In family loans, prevention is better than cure
If you lend money to a family member and do not follow the steps we have indicated, the Treasury will force you to declare the interest, whether or not there were any.
To avoid possible legal problems, the simplest thing is to do it right from the beginning. Write a simple contract and do not forget to indicate the amount of interest to apply or the absence thereof. Then, complete and present the Model 600 in the Treasury.
With this step, whether you lend money or lend it to you, you will be in a totally legal situation and the Treasury will not consider it a donation. However, do not forget to keep the documents that prove that you are making the return in the agreed time and form.
A family loan is often a more viable option than going to the bank, since it allows us to return the money without commissions and even without interest.
But if you do not want to depend on your family members and prefer to achieve Financial Freedom on your own, then it is best to contact a financial advisor. So you can learn the basics of savings and find the savings tools that best fit you and your family.