When you lend money to children or relatives, it can become a blessing for the recipient and a problem for the lender.
Normally we do not have the knowledge on how to lend money to a relative legally , and it is not as simple as accompanying the relative to the bank and handing over our money. Lending money between family members can be interpreted at the fiscal level as donations.
The red line that separates a loan from a donation is very narrow if we don’t do things right.
How to lend money to a family member legally
This is the typical situation in which we can find ourselves throughout our lives:
Father and son have a talk to discuss their financial issues.
SON : Dad. I just met with colleagues and we are finally going to ride a star-up.
FATHER : A start-? What is that?
SON : Jod … r dad. You do not find out. I had told you last week. The business is a website that broadcasts YouTube videos to sedate chickens before they are slaughtered. It is a safe business. Do you know how many chickens they kill a day?
FATHER : I imagine a few.
SON : Well, imagine. If we only get 1% of all the chickens that kill per day, the business is perfect.
FATHER : I think it’s very good (hahaha), to see if you are lucky.
SON : Cool. Can you lend me € 50,000?
FATHER: Comorrrrr? Hey, give me a video of those you put to the chickens, please.
In this situation the son asks the father to lend him € 50,000, and the father decides to bet on his son and lends him € 50,000 for his business.
How is your child and is starting your business, makes a transfer to your account and it’s over. At the end of the day it is his son: he wants it to come out economically and return it when he can … ERROR .
Whenever money is left to a family member, he has to meet a return deadline. There is a habit of receiving money from a relative and returning everything at the end. The return form can be interpreted by the estate as a covert donation.
In the Personal Income Tax Law, in relation to loans between individuals, there is the “presumption that they are paid” . In loans from parents to children it is normal that very favorable conditions are agreed, such as very low interest or directly free.
A loan to a family member is not usually considered as an economic business in which the family member can benefit. Therefore it is necessary to document the process well to avoid problems.
You already know that if there is an interpretation of donating money to a family member and we have not paid for it, we already have fiscal trouble.
In the Tax Law it is indicated that there may be a conflict that “when there are acts that are artificial or improper for the achievement of the result obtained”, we are going to be caught if you are involved with the objective of paying less taxes, and nowadays doing Look at everything.
How much money can be given to a child without paying taxes
There is a popular belief about receiving a tax-free amount of money.
One of the most widespread beliefs is that of not having to declare anything that exceeds € 3,000. This also comes from the hand of labor benefits: we believe that if we do not earn more than a specific amount we must not declare anything.
We are totally wrong.
These limits are related to the obligation of banks to inform the Treasury of income or cash withdrawals that exceed € 3,000.
Consequently, it is not possible to know how much money can be lent or given to a child without filing or paying taxes , since this is directly related to what your bank account reflects and which will or will not be under the magnifying glass of the Treasury.
Contract to lend money to relatives
When you lend money to a child or family member, you have that feeling that they will return it to you when you die, that is, a loan with no return. It sounds a little loud and they don’t tell you in the face, but in most cases it is true “and you know it”.
Lending money to a family member in most cases usually ends in conflict , and more so if it is to lend money to a child. On many occasions you will have to give the money for lost the same day you lend it.
But if we want to avoid that the Treasury also claims that management, we have to remember that a perpetual loan without any settlement can be interpreted as a donation.
You have to be very careful with this issue. If we do not do it well, in addition to losing our money, we have seen in the previous point that leaving money to a family member can become a tax offense.