Lending Money to a Friend: Legal and Tax Rules to Avoid Problems

Thinking of lending money to a friend or relative? Before you get out your checkbook, read this: a good intention badly framed can turn into a nightmare. At LEGALCITY, we explain how to protect your finances... and your friendship!

Why formalize a loan between individuals?

Money lending between individuals, also known as "friendly lending", is perfectly legal in France. But there are strict rules to be observed when lending money to a friend. An oversight or negligence can result in litigation, or even a tax reassessment.

1. Written agreement required for loans over €1,500

Underarticle 1359 of the French Civil Code, any loan over €1,500 must be in writing. Three forms are possible:

• ✍️ Private deed (drawn up between the parties) ;

• 🧾 Notarial deed;

• ✒️ Acknowledgement of debt signed by the borrower.

🔐 The writing must contain:

• Full identity of both parties;

• Loan amount ;

• Date;

• Repayment terms (schedule, duration, interest rate, if any);

• Signature of both parties.

2. The interest rate: optional but regulated

You can lend free of charge or charge an interest rate, as long as it complies with the usury rate set by the Banque de France. If interest is charged, it must be mentioned in the contract.

Tax obligations: what the law says

1. Loan declaration from €5,000

Any loan over €5,000 or with interest must be declared to the tax authorities using CERFA form n°2062. This declaration must be attached to the tax return for the year in which the loan was granted.

👤 The obligation to declare falls on the borrower, but the lender can also do so to protect itself.

2. Declaration of interest by the lender

Interest income is considered to be income from movable capital assets. It must be declared and is subject to :

• the 30% flat-rate withholding tax (PFU ) (12.8% tax + 17.2% social security contributions),

• or, as an option, to the progressive income tax scale.

Our tips for avoiding disputes

✔️ Prefer bank transfer to trace the transaction.
✔️ Keep all documents: contract, schedule, proof of repayments.
✔️ In the event of a problem, a contract in good and due form will facilitate recovery of the debt (or aninjunction to pay).

LEGALCITY, your ally in securing loans between private individuals

With our LEGALCITY solution, you can draw up a loan contract online, register an IOU, or launch a collection procedure in just a few clicks.

🔗 Need a template or guidance? Contact LEGALCITY now: https://legalcity.fr/