Do you want to help a friend financially and lend him money? Or are you considering creating savings through an online marketplace? In both cases, it is a private loan. What tax effects do you have to expect?
The personal loan – with friends or through a credit portal
With a personal loan, you act as a donor to a natural person. This form of credit is usually used in the family or among friends. The borrower may not be able to meet the requirements set by a bank or may want to transfer the money to one
But even if there is a natural relationship of trust, you should definitely conclude a contract. Determine how high the loan is, at what interest it is lent and over what period or how the repayment should proceed. Otherwise, the credit can put a strain on your private relationship or the state can even send unexpected tax claims in between.
Another possibility of private loans are loan portals, such as Good Finance or Best Lender. For you as a lender, the main advantage is the prospect of higher returns compared to many bank’s investment products.
Such portals can be attractive to borrowers because the conditions for getting money are easier and the loan process is quicker and less complicated. With an irregular income or an unusual business project, the loan seeker quickly reaches its limits at a conventional bank.
What do you have to tax as a private lender?
If you have lent money and receive interest for it, you must show it in your income tax return. The interest income is “income from capital assets” that must be entered in the KAP Appendix.
As a rule, the tax office charges the interest that has accumulated over the year with a flat tax rate of 25% plus a 5.5% solidarity surcharge. Church tax may also apply. As a single you are entitled to an allowance of 801 USD and as a married couple from 1,602 USD.
When it comes to taxing your interest income, it doesn’t matter whether you lent the amount to your brother or to a stranger through a marketplace. Since portals such as Good Finance forward the full interest income to you as the financier, they also transfer the responsibility for taxation to you.
What happens if you do not state the interest income in the tax return?
The problem with a loan that you give directly to a borrower is that he will of course try to deduct the interest paid from his income tax as business expenses or business expenses. In order to credibly present this to the tax office, your borrower may submit a contract or a statement. So it is quite likely that the authority will become aware of your earnings.
Special care should also be taken with earnings through online credit marketplaces. The tax investigation regularly controls the credit exchanges. The portals are obliged to disclose their identity to the authorities, to provide information about investment amounts and interest income.
If you have not stated your capital income in the income tax return, this is considered tax evasion. You risk a penalty and an additional payment, which can also apply retrospectively for the past ten years. In addition, there is 6% interest.