Loans between individuals, such as friends and family, are also an option. However, certain formal requirements should not be neglected, even if the money is loaned to close people. Do you know how to make a loan to an individual or family member safely?
How to make a loan to an individual or relative
Helping a friend or relative with a loan is a great show of appreciation to someone who may be having a bad time for an unforeseen event. Here are some guidelines to keep in mind to avoid inconveniences.
Use a written contract
When it comes to money, it is best to write everything down. The confidence that it is a family member or friend is not enough for the treatment to be verbal. The best thing is to establish everything from the beginning and thus avoid problems in the future. You can write a document that collects the following information:
- Place and date the loan is signed.
- Data that identify the borrower and the lender .
- Signature of both.
- Amount of the loan.
You must also specify if there will be interest or not and the percentage of these, as well as the term to return it . You must also indicate the type of installments (payment per month, by quarters ...) and any other conditions to which the loan is subject. Formalizing this contract will not only legally protect you from any incident, but will also avoid misunderstandings with the Treasury.
Do loans between individuals pay taxes?
No, they are not taxable . But you must write the contract including all the requirements mentioned above. Keep in mind that donations do pay gift and inheritance tax. If you do not have a valid contract, the Treasury may think that you are making an illegal donation instead of a loan.
What about interest?
It is important that you know that, if you are going to charge interest , that money you earn must be included as income in the income statement .
Reporting to the Treasury is mandatory
Although loans between individuals do not pay taxes, you do have the obligation to notify the Treasury. You will have to present the signed contract and the proof of the transfer between both bank accounts.
In addition, you will have to present the self-assessment form ( model 600 ) indicating that the operation is tax exempt. Since you have signed the contract, you will have one month to deliver this form to the Treasury.
Is there another alternative to the contract?
Another way to formalize the loan is to have it notarized . In that case, a notary will support the officiality and legality of the operation. The difference with respect to the contract is that in this case you will have to pay the notary.
Loans between individuals have the advantage that for tax purposes they do not carry taxes. Apart from that, they represent a much more immediate and flexible way to obtain money. The process with respect to requesting it in a bank is streamlined.
Now you know how to make a loan to an individual or relative . If you follow the formal requirements that have been seen in this guide, you will have no problem doing it legally. Another option to get quick financing are online loans. In Ideal Loans you can compare different options for quick loans.