Loan & Tax suggestion

Hello everyone,

I was considering the option to loan 15k Eur/year for 5 years to a relative in an EU country with a minimal interest rate. I would get back the money back when this person passes away and we sell the assets of this relative. This relative has lot of physical assets but cash poor. And has no debt.

Do you think I can deduct any tax from this loan until I get back capital + interest?

Do you see any other concern?

Thanks!

Giving a loan to somebody is a zero-sum game wealth tax-wise. In your case:

  • Your wealth decreases by 15k as you have this much less in your bank account
  • At the same time you have to declare the loan to the tax office, and guess how much it is worth - right, 15k. Consequently, your wealth increases by 15k right to the level where it was before.

One could of course “forget” to declare the loan, which would even work with small sums. In case anything goes wrong with the repayment of the loan and you need to go to court it could end very badly though.

Any interest received should be declared and will be taxed as income.

Edit: apart from tax implications, please consider worst case scenarios and make sure to draft a proper contract for the loan. What if your relative can’t (or won’t) repay the loan? What will you do in this case? Things like this can ruin family relationships.

3 Likes

I’ve done it (though only a high four-digit amount). Tax office accepted it without asking for anything.

Thank you both.

The idea is to have a small contract to protect myself against any possible heir of my relative.

I had in mind to declare fully and correctly everything as I would sleep better and would much easier to explain to authorities why I suddenly have 75k+ on my bank account.

1 Like

Perhaps one advice, since the relative has non-liquid assets, try to assess beforehand what are chances that his/her heirs will actually be able to repay the debt in liquid form.

Having to sell something, or to take a loan, to repay you (and perhaps they don’t even know about this debt) may cause strife and inconvenience.

2 Likes

In addition to the contract, I’d make sure the heirs of your relative know of this loan and ideally agree to it. Inheritance splits are often very emotional times and it’s easy to get caught in a “this relative far away is trying to steal from us” kind of feeling.

Another way to do it would be for them to get a line of credit, for which you could be a copayer. It’s riskier for you (you could end up owing the debt) but it may be cleaner for the family.

Thank you all.

Yes relatives/heirs are all informed and support this option as otherwise they would need to upfront money themselves, which they prefer not to do it given it’s not small amount outside Switzerland.

1 Like
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, vous confirmez avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/