Is the family loan an income?
Although the loan services sector is growing dynamically in our country, and banks and non-bank companies offer payday loans on favorable terms, the family loan is still very popular, mainly due to favorable tax regulations.
Under current law, loans do not constitute income for the taxpayer – regardless of whether it was received from a company or a private individual. Therefore, there is no need to pay income tax on this account. The tax on civil law transactions is slightly different, however, in certain cases it can be avoided.
Does a family loan have to bear interest?
According to the provisions of the Civil Code, the loan does not have to bear interest. In accordance with art. 720 §1 of the Civil Code, a person who takes out a loan undertakes to return the same amount of money or the same amount of items of the same grade and quality. The regulations do not impose an obligation to collect interest, although the parties may stipulate in the contract that the obligation will be payable.
In such a situation, the amount of capital interest may amount to a maximum of 10% per annum. The private loan and its special form – a loan from a family – are regulated similarly. Interest such an obligation is not obligatory.
Better loan from family in cash or in the form of a bank transfer? A safer solution will be transferring funds to a bank account, e.g. by transfer or postal order. Then it is easier to prove that the loan was actually granted and for what amount.
Is the family loan taxable?
Pursuant to applicable regulations, private loans are taxed with a tax on civil law transactions, which amounts to 2% of the amount. How does the law regulate this issue in the case of a family loan? Tax only people who have borrowed more than USD 9,637 will pay the loan.
However, the legislator provided for several conditions that must be met in order not to bear these burdens. So what does the issue of family loans and PCC tax look like ?
In what situations will the family loan be tax-free?
We will not pay tax on civil law transactions when the loan comes from the closest persons who fall within the so-called And the tax group. According to the regulations, it includes:
- son in law,
- daughter in law,
A family loan without tax may be granted once every 5 years – if another one occurs during this period, it will be necessary to pay the tax to the Tax Office.
When does a family loan become a donation?
A donation is an agreement in which the donor undertakes to provide a free benefit to the recipient at the expense of his property. A donation differs from a family loan in that it does not have to be repaid – it is non-returnable. Of course, there may be a situation where the loan will become a donation.
In this situation, a tax exemption is also possible – it will apply to a group of people belonging to the first tax group, except for the mother-in-law, son-in-law and daughter-in-law. The tax-free amount for donations is the same as for a family loan – USD 9,637.
Family loan and tax office
Are you wondering what formalities are associated with a family loan? Do you have to report to the tax authority the fact of receiving this type of financial support from close relatives? It turns out that with amounts lower than USD 9,637 you will not need to submit a loan to the tax office.
What about the situation where the loan amounts to higher amounts? In this case too, taxation can be avoided. It is enough to meet two conditions:
- document the receipt of the loan, e.g. by confirming a transfer to a bank account,
- within 14 days of the conclusion of the contract, submit a PCC3 declaration to the competent tax authority regarding the tax on civil law transactions.
Completing these formalities releases us from paying PCC tax even for higher amounts. The exceptions are loans granted between in-laws, son-in-law and daughter-in-law. Here, after exceeding the limit, you will be required to pay 2% tax.
As you can see, the regulations related to the loan from the family and the tax office vary depending on the amounts and the degree of relationship.
Formalities for family tax
How to document a family loan – contract
When borrowing money to immediate family members, we usually do not think about formalities, repayment time and other details of the obligation – most often we simply transfer funds to the account. Such action is not completely safe, so it is worth taking care of some type of collateral for the family loan.
How to document the fact of granting this type of commitment? It’s best to think about writing a contract. According to the Civil Code, the loan agreement, the value of which exceeds one thousand zlotys, requires a documentary form. A family loan agreement concluded in writing will allow you to avoid many misunderstandings in the future, e.g. regarding repayment dates.
What elements should a family loan contract contain?
The loan agreement allows you to prove disputed issues and can provide evidence in court. The document should contain the following information:
- date and place of conclusion,
- lender and borrower details,
- loan amount,
- the method and date of the loan (by bank transfer or postal order),
- return date
- degree of relationship between the parties,
- the amount of interest if the loan is payable.
The loan agreement should be drawn up in two identical copies and signed by both parties – the lender and the borrower.
Tax on civil law transactions (PCC-3) with a loan from a family
How do you complete the PCC-3 declaration with a family loan?
As we mentioned, if the amount of the liability exceeds USD 9,637, in order to avoid taxation, you should submit the PCC-3 declaration (with a family loan). How to complete the document so that the action was carried out correctly?
First, fill in the data of the submitting persons – enter the NIP or PESEL number. In field 4 specify the date of the action, i.e. the granting of the loan.
The declaration consists of 4 parts:
- Part A – in box 5 we provide the relevant Tax Office, in 6 – whether the purpose is to make a declaration or to make a correction.
- Part B – in box 7 mark box 5, if there is one person on the obligated person’s side, and 1 – more than one person. In the next sections of Part B enter the data of the entity submitting the declaration.
- Part C – concerns the subject of taxation and the content of civil law transactions. In field 21, indicate respectively whether the subject of taxation of the contract, its amendment or court ruling. Then we choose the place where property rights are exercised and legal actions are carried out – inside or outside the territory of the Republic of Poland. In field 24 we describe what the civil law action was about.
- Part D – choose the type of activity – loan agreement, enter the tax base in field 32, and the tax rate – 2% in 36. Enter the tax due in field 46.
Where to submit the PCC-3 declaration on a family loan?
The PCC-3 form on a family loan should be delivered to the Tax Office competent for the entity submitting the declaration. This can be done in person or by post.
When do you have to pay tax on your family loan?
The PCC-3 declaration must be submitted to the office within 14 days from the date of the civil law transaction.
What is the risk of failure to submit PCC-3?
An undeclared family loan has serious consequences. If we do not complete the formalities, we will have to pay as much as 20% of the loan amount.
Family loan and PIT
Are you wondering how a family loan affects PIT – income tax? It should be paid when there is a basis for income settlement. This happens when there is an interest-bearing liability on which the lender receives interest. PIT tax with a loan from a family must be settled independently.
Repayment of a loan from a family
The family loan is not always repaid on time. If we want to recover the borrowed funds, we can take legal action. After obtaining a favorable court decision, the bailiff will recover the claim. We may also decide to sell the liability to a debt collection company or enter into a settlement pursuant to which we will set new repayment terms.
A loan from a family for housing purposes
Funds received from loved ones through a loan can be used for a variety of purposes, e.g. the purchase of your dream property. A family loan for housing is now a very popular option. Close support is also in a different way, eg. By providing loans from family on the mortgage.
In such a situation, the borrowed money can be, for example, own contribution or be used to pay notary services or to pay PCC tax on the purchase of real estate on the secondary market. If we meet the requirements for documenting the fact of receipt of funds and submit an appropriate declaration to the Tax Office, then the loan from the family for the purchase of an apartment will not be taxed.
A business loan for a family
Funds received through loans from close relatives can also be used to grow your business. This happens in the case of entrepreneurs who are not creditworthy and cannot get a loan from a bank. In such a situation, it is also worth using an alternative solution, e.g. payday loans for companies.