How to Legally Protect Yourself When Borrowing Small Loans from Friends and Family in Spain

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Two people sit at a table reading documents intently, with a laptop and mugs nearby, set against a blue marble-patterned wall.

Borrowing money from friends or family can feel informal, quick, and stress‑free—especially when compared to dealing with banks. In Spain, however, this financial help brings tax implications that many people often underestimate. Even small, interest‑free loans between loved ones can raise red flags with the Spanish Tax Authority (Hacienda) if they are not structured correctly. This article explains how to legally protect yourself when borrowing money from friends or family in Spain, clarifying multiple aspects.

Gift or Loan? Why the Difference Matters

The first—and most important—step is deciding whether the money is a gift (donation) or a loan. In Spain, the distinction is not symbolic; it has direct tax consequences. A gift is a transfer of money with no expectation of repayment. Gifts are subject to Impuesto sobre Sucesiones y Donaciones (Inheritance and Gift Tax), which is paid by the recipient, not the giver. Depending on the autonomous community, tax rates can range from around 7% to over 30%. In many regions, close family members benefit from reductions, but this is far from automatic and varies widely. A loan, on the other hand, is money given with a clear obligation to repay it. Even if the loan is interest‑free, it is not subject to Gift Tax—provided it is properly documented and registered. Without documentation, Hacienda may presume the money was a disguised donation and impose taxes, surcharges, and penalties. The key takeaway is simple: if there is any intention to repay the money, it must be treated as a loan and formalised accordingly.

How to Draft a Simple Loan Agreement in Spain

Verbal agreements are not enough. To protect both parties, Spanish law requires a written document known as a contrato de préstamo entre particulares (private loan agreement). The contract does not need to be complex or notarised for small loans, but it must be clear and complete. At a minimum, it should include:

Full names, addresses, and DNI/NIE numbers of both lender and borrower
The exact loan amount
The date the loan is granted
The interest rate (explicitly stating 0% interest if applicable)
A repayment schedule (monthly instalments, lump sum, or fixed deadline)
The method of payment (bank transfer)
Date and signatures of both parties

Although a private contract is sufficient, some people choose to sign it before a notary to obtain a fecha fehaciente(legally recognised date), which adds an extra layer of protection—especially for larger sums or long repayment periods.

Registering the Loan: Modelo 600

A hand holding a black pen signs a document on white paper. The document contains text in paragraphs. Signature line is prominent.

One of the most overlooked steps is filing Modelo 600, the form used to declare certain transactions subject to Transfer Tax (Impuesto sobre Transmisiones Patrimoniales).

While loans between private individuals are generally exempt from tax, the form Modelo 600 must still be filed to register the loan and prove it is not a donation.

Key points to remember:

Who files it? The borrower
Where? The tax office of the borrower’s autonomous community
When? Usually within 30 days of receiving the money
What to submit? The completed Modelo 600 and a copy of the signed loan agreement

Failing to file this form is one of the main reasons Hacienda reclassifies loans as taxable gifts.

Bank Transfer Tips to Avoid Problems with Hacienda

How the money moves is just as important as the paperwork.

Always use bank transfers, never cash
Clearly label the transfer concept as “Préstamo” or “Personal loan”
Avoid vague or dangerous terms such as “help,” “gift,” or “family support”
Repay the loan using bank transfers as well, with clear references like “Loan repayment – March 2026”

Banks routinely report transactions of €3,000 or more, and larger sums may trigger additional scrutiny. If the loan exceeds €10,000, the borrower may also need to justify the origin of the funds, meaning the lender should be able to show where the money came from. A properly registered loan agreement makes these checks far less stressful.

Repayment Strategies and Interest Considerations

Family and friend loans in Spain can be interest‑free, which is perfectly legal. However, the contract must state that the interest rate is 0% to prevent Hacienda from assuming hidden interest. If interest is charged, it becomes taxable income for the lender and must be declared. Best practices start with agreeing on a realistic repayment schedule and respecting the agreed payment dates. Each repayment should be made in a traceable way and properly documented, so there is a clear record over time. If early repayment is a possibility, it is worth addressing it in the agreement from the beginning to avoid misunderstandings later on. Consistency is crucial. A loan that is never repaid—or repaid irregularly—can later be challenged as a disguised donation.

What Happens if Someone Dies?

Another reason to formalise the loan is to protect both sides in unforeseen circumstances.

If the lender dies, the remaining debt is owed to their heirs
If the borrower dies, the obligation to repay passes to their heirs

A written, registered contract ensures the debt is recognised during inheritance proceedings and avoids disputes among family members.

Common Pitfalls People Overlook

Borrowing money from friends or family often brings problems that go beyond tax issues. It creates expectations that do not always line up: one person may call the money a loan, another person may call the money a gift. Skipping written agreements to keep things informal can then lead to misunderstandings, disputes and tax trouble.

Conclusion

In conclusion, borrowing money from friends or family in Spain can be an alternative to interest credit, but only if it is done correctly. In fact, borrowing money needs a written loan agreement, tax registration, and bank transfers to protect you from penalties and personal conflicts. When in doubt—especially if the amount of money is large or the family situation is complicated—you should talk to a tax advisor or lawyer can save far more money (and stress) than it costs. Handled properly, a family loan can remain what it was meant to be: a gesture of trust, not a future problem.