How private loans work at tax level

Today there are many financial alternatives to banks. From private equity companies to private lenders. Each of these options has its consequences at the fiscal level. Although it is likely that you have never considered it. For example, do you know how loans between individuals work on a fiscal level? If you have no idea, don’t worry. In Particular Lenders we clarify it for you. Continue reading.

Loans between individuals

Loans between individuals

Before explaining what the fiscal consequences are, it is important to be clear about what a private loan is. We speak of this modality at the moment in which a financial relationship is established between two parties. The lender, a natural person, offers capital to the borrower. In this way a contractual relationship is created where limits and characteristics of the financial agreement must be set. From repayment terms, through interest, possible commissions and duration of the loan. Without forgetting, of course, to agree the amount between both parties.

It is essential to create a contractual relationship

Although today the Law does not contemplate a specific type of contract when a private lender offers money, it is necessary that the agreement be reflected by contract. This way possible problems are avoided in the long run. All the characteristics of the loan must be reflected in said contract. So much:

  • the amount to lend,
  • such as the return period and fees,
  • possible interests,
  • The extraordinary characteristics of the agreement. As for example possible commissions for delay or partial or total early amortization.

For the process to be well established it is necessary to sign it before a notary.

How private loans work at tax level

How private loans work at tax level

Now that these details are clear, it is time to find out how loans between individuals work on a fiscal level.

According to article 45 of Royal Decree 1/1993, loans between individuals are exempt from having to pay the tax on documented legal acts. And the tax on capital transfers.

Precisely this exemption has led to abuses taking place over the years. Many people cover donations in the form of private loans to avoid having to pay those taxes.

That is why it is so important that it is clear that when making this agreement it is being done from the strictest legality. Regardless of whether it is a loan with a lender or with a friend or family member. In all cases it is recommended to sign it before a notary and present it later to the Treasury. In this way the contract is reflected and there are doubts about its legality. Thus, the tax administrations will have no doubt that it is really a loan between individuals.

It does not matter that it is an interest-free loan with a very long repayment term. As long as all its characteristics are reflected in the contract, a capital return link will be established between both parties. This will show that it is not a donation.

Did you find this information interesting?

Did you find this information interesting?

In that case we encourage you to take a look at the news section of Private Lenders. Here you will find more interesting information on economics, finance and economic news. For example:

  • Are there interest-free loans?
  • APR and TIN: two essential acronyms when requesting a loan
  • What is the legal interest in money and what is it for?

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