Accepting a loan request over an aperitif, among friends, by lending a few thousand euros, then asking to repay “a little more” for the gesture, seems like an arrangement without consequences. From a tax perspective, this supplement has a specific name. It’s a interestand any interest received by an individual constitutes taxable income. The lender who forgets it is exposed to a reminder, sometimes accompanied by penalties.
The amount loaned does not change the lender’s tax, since the capital repaid is not a gain. Everything depends on remuneration and proof. For Capital, the tax lawyer Pierrick Babinformer inspector and auditor of public finances, details two reflexes which avoid most of the problems, correctly declaring the interest and formalizing the loan in writing.
This supplement is interest, therefore taxable income
Amounts collected beyond the capital are legally interest. “The interest paid by the borrower constitutes movable capital income taxable by the lender”recalls Pierrick Babin. By default, they fall under single flat-rate deductionthe flat tax, at the overall rate of 31.4%. The lender is not a prisoner of this rate. He can opt for progressive scale income tax, a global option which then applies to all of its movable income for the year.
For a low-tax household, the scale is sometimes less burdensome than the flat tax. The only useful trade-off is to compare the two each year, before declaration. From this mechanism comes counterintuitive advice. It is better to think net of tax than displayed rate. “A slightly lower interest rate but effectively collected after tax can be more attractive than a higher rate that is heavily taxed”summarizes the lawyer. A quick simulation, even before setting the loan rate, is enough to decide.
Without writing or declaration, the boost turns into recovery
Taxation does not stop at the taxation of interest. As soon as the total loaned to the same person exceeds 5,000 euros over the year, in one or more payments, the loan must be declared using the form 2062filed with the tax return. The process is free and even applies to an interest-free loan. Below 1,500 eurosa written document is not required for proof, but it remains strongly recommended.
Forgetting to declare is rarely costly in itself, a fixed fine of 150 euros in principle. The real danger lies elsewhere. “An undeclared and insufficiently documented loan can be reclassified as a disguised donation, with gift taxes and sometimes very heavy penalties.”warns Pierrick Babin. And to add the pitfall that he encounters most often, “the most common trap is the total absence of formalism”.
A written record is essential
The solution is simple and inexpensive. A dated writing mentioning the Risingthere durationTHE ratethe repayment terms and the signature of both parties is sufficient in most cases, in the form of an acknowledgment of debt or a contract under private signature. For high amounts, registration of the act with taxes, charged 125 eurosgives a certain date, just like going to a notary. “In tax matters, the best defense remains traceability”concludes the tax specialist.
Please note, theA one-off paid loan between relatives is perfectly accepted. The repetition of operations of this type may, however, raise the question of banking monopolyreserved for approved establishments. Pierrick Babin invites us to distinguish a simple family helping hand from a lending activity carried out on a regular basis.
