What to think about if you lend money to family members in France
Having recourse to legal protection can be useful even when dealing with those close to you
Loans of over €1,500 require legally binding documentation
nadia_if/Shutterstock
Lending money between family members is common, especially when the amounts are only small.
However it can get more complicated when the money being offered rises, and it can become a thorny issue to ask – or hand over – the money.
This is particularly the case when sums reach thousands of euros, potentially making up a significant portion of someone’s earnings or savings.
Below are some good tips to keep in mind when lending money to family and close friends in France.
Written proof of loan important
There should be a high amount of trust between you and the people you are lending money to as family members, however this may not always be enough to ease concerns over future repayment.
One benefit of lending between family and friends is there are no intermediary fees or interest (as there may be with a bank or private loan, for example).
On the other hand, these informal loans lack legal backing, and can turn into a ‘he said, she said’ debate in the case of non-repayment.
To counter this, the use of a written document in the form of a loan agreement or IOU stating the key information of loaner and loanee can be helpful. These documents, if properly formatted, are legally binding.
They should include:
Both parties should sign this and keep a copy. A model IOU in French is available here from the Institut National de la Consommation.
High loans have legal obligations, be aware of gift tax
The above tip is not only useful, but sometimes mandatory.
Loans of a value of €1,500 or more require such a document (signed with each party having a copy), to prevent legal disputes.
In addition, loans of over €5,000 have to be declared to the tax authorities during your annual declaration in spring.
This is done using form 2062. A lack of cohesion between declared income and funds available may raise suspicion, making you liable to a tax assessment.
If you do not repay the money, it may be seen as a gift, meaning tax must be paid on it.
Read more: Consider the tax implications of making a gift in France
Using a notaire
If you want to be extra careful – or if the sum of money is particularly large – having a notaire prepare and facilitate the documents can be useful.
While hiring a notaire will incur a fee, it will make sure the document contains everything needed before it is signed, minimising the risk of error.
In addition, if your document is signed by a notaire – becoming an acte authentique – it is legally enforceable in the case of any future issues.
It allows you to skip any appeal regarding the case to a local judge, instead taking it directly to a commissaire de justice to rule on.
Notaires can also register the loan amongst their files, providing further legal protection.
Read more: 13 things French ‘commissaires de justice’ do apart from collect debts
