Loans between individuals or hidden donation?

Many times we may wonder if the loan we are making is a loan or on the contrary we could be making a disguised donation without knowing it. As you know in case of being a donation, a father gives money to his son without the intention that the son return it, he must pay the Donation Tax. Next it is explained in a very clear way

Covert loan or donation?

This following comment is also taken from Legal News and we reproduce it below for your interest:

You have to be cautious when making a loan between relatives and comply with the established requirements because if it is not done correctly it can be considered that you are dealing with a disguised donation. This is the case that has been resolved by the Judgment of the Superior Court of Justice of the Principality of Florida of July 27, 2004. The factual assumption is that a father gives a sum of money to his son for the purchase of an apartment assuming the child in the public deed the intention to return it.

The ruling considers that the relationship between father and son and the economic situation of the same must be taken into account, since after the pertinent verification it has been shown that the overdue installments of the loan have not been returned since the son does not have any assets or sufficient income to meet the payment.

Likewise, the Tax Administration has verified that there has been a total simulation of the loan contract between individuals since the monthly payments were made from an account owned by the parents.

The Chamber comes to the conclusion that although there would initially be no objection to what is the figure of the loan contract between relatives to acquire the habitual residence, however after it it has become clear that the sole purpose was to avoid the subjection Tax on Donations.

Thus it turns out in this case that the Administration has shown that there has been a simulation of a loan that conceals a donation and that as such it must be taxed and that therefore we are not facing any loan.

It is clear that loans between individuals are allowed, provided they are done well . The previous sanction was not originated by a loan between individuals, but because it was a disguised donation.

In case there is any doubt, the Civil Code talks about loans between individuals, including family members.

Civil Code Blog Archive Book IV: Title XIV. Of the deposit

When dealing with the issue of bonds, in its article 1824:

"Except from the provision of the previous paragraph the case of loan made to the family child."

Summary

They can lend their own money, not that of others, who are of legal age, do not have debts or a negative balance on a credit card

You can lend money to companies and freelancers, but as the amount of paperwork is greater, it is left for "advanced users".

It is recommended to ask for properties that serve as security. The ownership of the property can be verified by requesting a simple note of the property in the Property Registry

Tax data. Name, ID, address of both parties
Payment method (preferably by transfer to checking account)
Interest rate (preferably fixed) It must be lower than 25% by law, and lower than the market to attract the debtor.
Clauses for the debtor to bear the cost of communications in case of delay
The contract must be signed with both parties present, and checking the DNI before a notary.
The creditor or lender must declare the income as personal income tax. In the case of loans to companies, in addition, you must pay the quarterly VAT and make the annual VAT summary And if the loan is to a self-employed person, you must also withhold personal income tax (15 or 7%) and pay it later to the Treasury.
If the debtor does not pay and there is no choice but to initiate the claim, the steps indicated by law must be followed