A family loan contract is a very common source of financing in under-financial situations. If we have good contact with loved ones, then we can certainly count on support without having to worry about interest and other additional costs. However, what should you remember when borrowing money from loved ones? What does a family loan agreement look like? Are we obliged to pay tax on civil law transactions?
Family loan agreement
A loan is any transaction involving the transfer of a specified amount of money to the borrower. The entity providing such support can be both a natural person and an institution. All rules for providing financial support are regulated by the Polish Law in the Civil Code. In the case of loan companies and banks, you should also read the consumer loan laws.
The above information may come as a surprise to some, because few people are aware of the existence of legal norms defining how to deal with private loans. The law sets the maximum tax-free amount, while in other cases we have to submit a loan to the Tax Office and tax the amount of funds obtained.
Family loan agreement pattern
As long as we have a good family relationship, the lack of an agreement regarding this commitment is not a problem for us. However, there are different situations in life. The atmosphere can always go bad, and then there may be trouble. Someone can accuse us that we have not repaid part of the loan or demand excessive interest. If all the information is on paper, then we can save ourselves a lot of nerves.
In addition, we may need such an agreement to submit it to the Tax Office and taxation of transactions. How it’s possible? In the Civil Code, art. 720-724 set out all the rules for granting all loans. Among them you can also find information on the taxation of such transactions in the family. The PCC tax, i.e. the tax on civil law transactions – is regulated by the Act of September 9, 2000. He is subject not only to loan agreements, but also to donation agreements, sale agreements, irregular deposit agreements, mortgage establishment or inheritance agreement.
PCC and a family loan agreement
For loans from relatives, the PCC tax is 2%. According to the provisions of the Civil Code, any such transaction should be reported to the Tax Office. However, there are some exceptions. When are we exempt from paying tax on the loan agreement? If we borrow an amount not exceeding PLN 9,637 to a member of our immediate family within 5 years, then we are released from the obligation to pay tax on civil law transactions. However, for example: we borrowed my brother in 2015 PLN 5,000, and now he needs once again financial support amounting to the same amount, everything should be documented and reported to the relevant Tax Office.
Within the meaning of the regulations contained in the Civil Code, the immediate family includes: spouse, stepson and stepdaughter, siblings, in-laws, stepfather and stepmother, and descendants – children, grandchildren, great-grandchildren, ascendants – parents, grandparents, great grandparents. If we lend PLN 9 637 to my father-in-law, then we do not have to worry about having to pay tax on civil law transactions. Otherwise, we will be required to visit the Tax Office and submit relevant documents.
Loan agreement with no interest in the family pattern
However, it is worth knowing that even in situations where we have lent to one of our immediate family an amount exceeding PLN 9 637 in 5 years, there is a possibility of exemption from the obligation to pay tax. Several conditions must be met. First of all, the money must be delivered to the borrower to a bank account, Kooks account or postal order. This will prove that the funds were actually paid to the person and how much the loan was. In addition, it will be necessary to draw up the appropriate contract between the lender and the borrower. Thirdly, the person who has received financial assistance from us is obliged to submit the PCC-3 declaration to the Tax Office.
The PCC-3 declaration should be submitted within 14 days of the conclusion of the contract. This is a document regarding tax on civil law transactions. After completing the form with the relevant personal data, address and regarding the type of contract and tax base, we must submit a document to the branch assigned to us. If you have questions or concerns, please contact your body representative. The declaration can be completed on the machine, by computer or by hand in large capital letters, black or blue pen.
However, if a loan agreement with a value above PLN 9,637 was concluded between parents-in-law and son-in-law or daughter-in-law within five years, then we must pay the appropriate amount of tax. If we neglect this obligation, we will be charged with the necessity of paying 20% tax on civil law transactions. That’s why you shouldn’t avoid responsibility. It will save us not only nerves but also money. We should also remember about the applicable deadline to pay the appropriate amount of tax, which is 14 days from the conclusion of the contract.
A family loan cash loan agreement
The loan agreement is a document confirming the transaction between the lender and the borrower. In the case of benefits provided in the family, no other activities will be required other than making a proper statement in writing and, as mentioned above, in certain cases of submitting a PCC-3 declaration.
What should the loan agreement contain?
- title: Loan agreement,
- date and place of conclusion of the contract,
- lender and borrower’s personal and address details,
- the amount the borrower has received,
- deadline for returning funds received,
- the total amount to be refunded together with accrued interest,
- place of transfer of money or bank account number and details of its owner, to which funds are to be transferred in the previously specified amount,
- information about the possibility of early repayment or lack of liability,
- the option to terminate the contract with a specific notice period,
- information on the compliance of the contract with the provisions of the Civil Code and their application in situations not included in the contract,
- at the end the signatures of both the lender and the borrower must appear.
The loan agreement should be official and drawn up in accordance with the specimen, as it may need to be submitted during the tax exemption process at the Tax Office. In addition, it can be used as collateral in case of problems for both transaction entities.
In summary, as a lender, we should take care of our safety and draw up an appropriate loan agreement. However, it is the borrower who needs to tax or make a declaration.