Ask a tax advisor on the topic of Capital assets

Interest income

November 30, 2010 | 30,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

For the purchase of my son's house, I would like to lend him 150,000 euros. The repayment should be 650 euros per month. The remaining debt should be annually compounded at 2.5%. What is the tax situation if a contract is concluded with him? What do you recommend? Am I generally required to provide information to the tax office when lending money within the family? Best regards

Dipl.BW/SB Ulrich Stiller

Dear Advisor,

Thank you for your inquiry, which I would like to answer based on your information and in the context of your involvement in an initial consultation as follows:

The conclusion of the loan agreement with your son constitutes an agreement among close relatives within the meaning of § 15 para. 1 no. 3 of the Fiscal Code (AO). The contract must correspond in terms of content and implementation to what is possible between unrelated third parties.

For the purpose of comparison with unrelated parties, the Federal Fiscal Court (BFH) has established the following principles in its judgment of April 15, 1999 (IV R 60/98):

1. The contract must include an agreement on the term of the loan.

2. There must be an agreement on the type and timing of repayment.

3. Interest must be paid at maturity dates.

4. The repayment claim must be adequately secured for long-term loans (e.g. by registering a mortgage).

The Tax Office will examine the contract with increased attention to its content and implementation.

The contract should be prepared or reviewed with the assistance of a tax advisor to ensure that you and your son do not encounter any difficulties with the Tax Office. If you wish, I can review the contract, with the initial consultation fee paid here being credited, as part of a mandate. If interested, please feel free to contact me at StillerStB@gmx.de.

Best regards,

Ulrich Stiller
Tax Advisor/Business Economist