How to lend money to children or relatives

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 delivering our money. Lending money between relatives can be interpreted at the tax level as donations.

The red line that separates a loan from a grant is very narrow if we do not 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 put on a star-up.

FATHER : A start-? What is that?

SON : Fuck… r dad. You do not find out. I 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 per day?

FATHER : I imagine a few.

SON : Well imagine. If we only get 1% of all the chickens they kill per day, the business is perfect.

FATHER : I think it's very good (hahaha), let's see if you are lucky.

SON : Cool. Can you lend me € 50,000?

FATHER: Comorrrrr? Hey, put me a video of those that you put 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 the € 50,000 for his business.

How is your son and he is starting his business, he transfers him to his account and it's over. At the end of the day, he is his son: he wants it to be cheap and for him to return it when he can ... ERROR .

Whenever money is left to a family member, they have to meet certain repayment terms. There is a custom of receiving money from a relative and returning everything at the end. The form of return can be interpreted by the estate as a disguised donation.

In the Personal Income Tax Law, in relation to loans between individuals , there is a “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 relative is not usually considered an economic business in which the relative can benefit. Therefore, it is necessary to document the process well to avoid problems.

You already know that in the event that there is an interpretation of donating money to a relative and we have not paid taxes for it, we already have a tax mess.

In the Tax Law it is indicated that there may be a conflict that "when there are acts that are artificial or improper to achieve the result obtained", then if you are caught with the aim of paying less taxes you have bundled it, 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 an amount of money exempt from taxes.

One of the most widespread beliefs is not having to declare anything that exceeds € 3,000. This also comes from the hand of labor compensation: we believe that if we do not earn more than a specific amount we should not declare anything.

We are totally wrong.

These limits are related to the obligation of banks to inform the Treasury of cash receipts or withdrawals that exceed € 3,000.

Consequently, it is not possible to know how much money can be lent or given to a child without declaring or paying taxes , since this is directly related to what your bank account reflects and that will or will not be under the scrutiny of the Treasury.

Contract to loan money to relatives

When you lend money to a child or a relative, you have that feeling that they will return it to you when you die, that is, a loan with no return. It sounds a bit strong and they don't say it to your face, but most of the time it's true "and you know it."

Lending money to a relative in most cases tends to end 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 that you lend it.

But if we want to avoid that the Treasury also claims this management from us, we have to remember that a perpetual loan without any type of 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 relative can become a tax crime.

To do things well, it would be convenient to translate the conditions into a properly detailed loan agreement between individuals . Here is an example you can use:

Example of a loan agreement between individuals

1 # Place and date of celebration.
Madrid, January 16, 2016

2 # Identifying data of the borrower applicant and the lender or investor .
On the one hand Don Alonso Quijano, with DNI / CIF 12345678T, marital status in love, with address at Calle Su merced, 1st floor, door A, ZIP Code 25025 Villanueva de los Infantes, Toledo, hereinafter the LENDER.

On the other hand, Don Sancho Panza, with DNI / CIF 9876542T, single marital status with address at Calle Su merced, 1st floor, door A, ZIP Code 25025 Villanueva de los Infantes, Toledo, hereinafter the BORROWER .

3 # Purpose of the loan and delivery method
The lending party makes a loan for the amount of 150 maravedíes delivered by hand, to make the trip as a squire in training in search of Dulcinea del Toboso.

4 # Form of payment and return period .
The repayment of the loan is agreed in 12 months from the date of signing in 12 monthly installments.

5 # Interest applied to the loan.
8% of the borrowed capital will be applied to the signed loan, equivalent to 12 maravedís.

6 # You can include clauses in case of default of the loan. For example: "In case of default the borrower will have to make me dinner . "

This model would be a standard contract as an example of what can and should be done with a loan between family or friends.

Finally, this agreement can be reflected in a private contract, or simply go to a notary to raise a loan deed to the public, with these steps we will carry out the process legally and without future problems with the Treasury .


It is convenient to educate people and especially family members that legally lending money has two directions: one outward and the other back.

In the event that there is only one address, there will be a victim in the event that things are not done legally.

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9 opinions on "How to lend money to children or relatives"

  1. What happens to the Treasury if the lender dies before the loan payment is finalized by the borrower (child)? Does the loan residue enter the declaration of heirs?

    1. Dear Mario.

      An investment of whatever type, loans, shares, deposits, etc., when there is a death of the owner, the capital plus his interests is transferred to the direct heirs, in the event that there is a will to those indicated by him. You will have to make the declaration of heirs to become a borrower of the debt. The debt is not lost by the lender.

  2. I want to make a loan to my son of 14,000 euros, which are the steps to follow to do legal things without paying the Treasury, my son will give me back the money as he can

  3. Two questions about a loan to build a house for the son.
    1. The parent-child loan can be free, right? That is to say without interest. Obviously mentioning it in the contract and presenting the mod. 600.
    2. Can several loans be made as the architect issues the certifications?

  4. Hello, if my mother lends me money without interest, I have to pay taxes,
    It changes if I put a friend in the private contract and in the 600 model

    1. Taxes are not paid whether you put yourself or a friend. It is an interest-free loan. Therefore, neither they "benefit" from lending you money, that is, they do not count it as an expense, nor do you harm yourself by paying taxes on that "income."

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