A child wants to buy an apartment, a loved one experiencing some financial difficulties or starting a business? So many opportunities to financially help a loved one to carry out a project or get out of a delicate situation by granting them credit. This type of operation is subject to certain rules and formalities of use. In the absence of an act recorded in writing and registered, the individual (lender or borrower) cannot justify the reality of the loan to the tax authorities or the courts in the event of a dispute.
Types of Credit
In practice, two main types of family loans coexist:
- credit by deed under private signature, that is to say without the intervention of the notary and without any particular modality of reimbursement,
- Notarial credit: the notary writes the deed (in the event of a dispute, this deed authenticated by a ministerial officer therefore constitutes evidence). This formula naturally generates additional costs.
For a person who lends money to a family member, credit by private deed may prove to be sufficient, subject to compliance with certain rules:
- the person who borrows you money is required to sign the loan contract (or simple acknowledgment of debt) and add with his own hand the amount of the amount borrowed in numbers and in letters,
- an original contract must be drawn up in two copies, one for the lender, the other for the borrower (but a single original is sufficient for an acknowledgment of debt),
- the act must be registered with the tax office.
In the event of non-compliance with these rules, the borrower cannot justify to the tax authorities, in the event of a tax audit, the origin of the sums he has received.
Individuals can also opt for notarial credit. Its cost is higher than the loan by private deed because of the notary fees.
Whatever the formula chosen, the drafting of a written contract or at least an acknowledgment of debt is necessary. Above an amount of $ 760, the drafting of an act is compulsory.
The most important formality remains that of registration. The act must be registered as soon as possible in order to be quickly incontestable. Carried out either on the initiative of the lender or the borrower, registration consists of depositing with the tax authorities the originals of the deed, as well as an additional copy conforming to the originals.
Credit: Additional guarantee: mortgage
The credit agreement may be accompanied by a mortgage. In this case, the loan deed must be drawn up by the notary. The mortgage proves to be a very effective security, as a rule, but requires a long and expensive procedure. To be truly effective, it must be first. This means that as soon as the borrower owes money to several people, the various creditors are paid one after the other according to the rank of their mortgage. The first rank thus guarantees the lender to be paid in the first, preferably compared to the other creditors of the borrower.
Credit: Cost and reimbursement
Payment of interest (up to the rate of usury) may be required even between members of the same family.
Conversely, the fact of not demanding interest is not considered by the tax authorities as an indirect donation, except in special cases (loan of a very large sum of money repayable over a very long period, for example).
It is also prudent to define from the outset, in the credit contract, the repayment terms:
- all at once at a deadline fixed in advance,
- in several installments, by determining the frequency of reimbursements (monthly, quarterly, annual).
Often, however, the lender leaves it to the borrower to initiate repayment based on the state of their income.
Credit: Tax obligations
Any credit over $ 760 must imperatively be declared to the tax authorities, at the same time as the annual declaration of income, as a general rule.
The lender is required to add to his income the interest which he may receive under the loan contract.
NOTE: the interest relating to family loans of a maximum duration of 10 years, and granted between 01.01.2006 and 12.31.2007 to a direct descendant for the purchase of their principal residence, are exempt from income tax and social security contributions. The loan is not limited in its amount but the exemption relates only to interest received in remuneration of a capital of $ 50,000.
If the lender is liable for solidarity wealth tax (ISF), the loan he has granted constitutes a receivable which must be included in his taxable assets. Conversely, if the borrower is taxable at the wealth tax, he can deduct the loan from his taxable assets.
Credit: Death of one of the parties
Death of the lender: the declaration of succession must include the amount of the credit (principal and interest) not yet reimbursed. If the borrower is not one of the heirs, he is obliged to reimburse the latter the amount of the capital and, where applicable, interest accrued until the day of death. As an heir, on the other hand, he must deduct from his share of inheritance the amount of the credit and, where applicable, from the interest accrued until the day of death.
Death of the borrower before the full repayment of the loan: the debt is passed on to his heirs and its amount is entered in the liabilities of the estate.