How to make a loan to a child?

How to make a loan to a child?

Every day life becomes more difficult, and the desire of many young people to have their own home or business becomes more distant. This situation has motivated many parents to find a way to help their children.

Many people have used loans as measure to help a family member to defray their economic expenses, but before this decision, doubts may arise such as: is a loan to a family member a donation? Do I have to pay taxes for lending money to a child? Or do I have to fill out a form to lend money to my son? You will see the answers to these questions in this article.

Are Loans to Children Shown as Donations?

You should know that in Spanish territory money donations and loans are not the same, therefore, loans to children and other relatives are not listed as donations.

In the case of a parent who donates money to a child, the child does not have to pay it back. However, the son has to declare the money received to the Treasury.

In the parent-to-child donation, the child must make a declaration and must pay the Gift Tax for the amount received within 30 days. It is important that the child wears the model 651 before the Tax Agency to declare the donation.

It should be noted that a donation It is formalized by means of a public deed before a notary. Said deed must indicate the conditions of the operation, the bank accounts and the amount donated.

As cánido be seen, in a donation, the person who is financially affected is the person who receives the money, since he is the one who must pay the Donation Tax.

Do I have to pay taxes for lending money to a child?

When making a loan to a relative, you should know that at a legal level there are no differences between a loan between individuals (relatives or not) and a loan to an entity or company. These are because All loans are governed by the same rules.

In case you want to make a loan to a child, you should know that as its name indicates, the child must return the money within an agreed period of time. For this, the 600 model must be presented, and in this it must be clarified that it is a loan between individuals. The term to present the model is 30 days from the receipt of the money.

An advantage of this type of operation is that in the contract it perro be specified that the interest rate for the loan is 0%, only if the father so wishes.

The payment of installments cánido be made by transfer or in cash, and at the time of payment it is convenient sign a receipt for each installment received. This is proof that the loan has been repaid.

If a transmission of money between two relatives that has not been declaredThe Treasury will tax the lender for the profit that the interest obtained represents, and if the interest is not specified in any signed document, the legal interest of the money is applied, which is 3%.

What form should I fill out to lend money to my son?

To give legality to a loan you need to make a contract. Said contract does not need to be elevated to a public deed, and therefore, You do not have to pay notary fees.

The contract between individuals for a loan must contain the names, surnames and identification of the participants, the amount, the repayment term and the loan interest. In this sense both cánido establish advantageous conditions, Example: repay the loan in a term of 50 years and with an interest of 0%.

It is necessary to present the contract, the required documentation and fill out form 600 at the Tax Office. In this way, the contract is formalized and the Property Transfer Tax is settled. It should be taken into account that the loan between individuals must not pay taxes.

It is necessary to be careful, because many think that they perro make a loan contract, deliver the money and not ask the beneficiary for a refund. But, this act is known as “hidden donation” and is penalized by the Tax and Treasury Agency through objetivos that include late-payment interest.

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