Essential Tips for Reporting Private Loans

Private loans are intended to provide financing to a friend or family member. If the loan amount exceeds €760, you are required to declare it. This article covers everything you need to know about this process.

Why use a private loan agreement or promissory note?

There are several scenarios where using a private loan agreement is highly beneficial. Such a declaration protects the lender in the event of a default by the borrower or in the event of the borrower’s death. It is also essential to declare a private loan agreement if the amount lent exceeds €760. The same applies to multiple private loans where the cumulative total exceeds €760 within a single year. By following this procedure, taxpayers can avoid being taxed on the amount as taxable income or gift tax. Furthermore, it is worth noting that the fee for registering a loan declaration with the tax authorities is €125. This is done using Form No. 206, “Declaration of Loan Agreement.” This registration process is often more cost-effective than hiring a notary. It also serves, for instance, to maintain administrative proof of the commencement of the private loan agreement.

Written contracts and the death of the lender or borrower

To formalize this loan in writing, you may consult a notary or draft a private agreement yourself. If you choose to create a private agreement, it is advisable to prepare multiple copies. For a loan agreement between individuals, it is best to set aside one photocopy for the borrower and at least one original for the lender. To be legally valid, a private loan agreement must be in writing, signed, and dated by the borrower. Regarding the amount, it must be stated in both figures and words. Furthermore, in the event of the lender’s death, the estate declaration must include the unpaid portion of the loan (both principal and interest). It is therefore essential to establish a written and registered deed to clarify the situation. Conversely, if the borrower passes away before the loan is fully repaid, the debt is transferred directly to their heirs, and the amount is recorded as a liability within the estate.

How to draft a private loan agreement?

For those looking to lend or obtaining a peer-to-peer loan exceeding €760, they are required to file a formal declaration. But how should this contract be drafted? When drafting such an agreement, several essential elements must be included. These typically include the contact information for both the borrower and the lender, as well as the total amount being lent. Additionally, the repayment terms must be specified. It is important to note that the contact information for both the borrower and the lender must always include their full names and addresses. The amount of the loan must also be recorded in both figures and words. Regarding the repayment terms, one must account for any interest paid to the lender and any applicable recovery rates.