Does lending money interest-free count as a 'gift'?

Lending money interest-free does not immediately constitute a gift.However, depending on the conditions, it is possible that the interest portion may be considered a gift.

■ Basic Concept

Monetary transactions are broadly divided into:

・Loan (with the premise of repayment)
・Gift (with the premise of no repayment)

The treatment differs between these. Even if interest-free, if it is:

・An obligation to repay exists
・Established as a contract

then it is basically a loan.

■ Why it becomes an issue

The point is the "interest." Normally, when you lend money,

・Interest (consideration)

is usually generated. If that is zero, it can be considered giving away the profit that should have been received originally.

■ Where it is judged as a gift

In terms of taxation, in cases of:

・Extremely low interest
・Interest-free

it is possible that the difference (the amount equivalent to the original interest) = gift may be assumed. This is especially likely to be an issue between:

・Parents and children
・Relatives

as it is prone to problems.

■ Cases likely to be judged as such

Be careful in the following cases:

・Repayment deadline is vague
・Not actually being repaid
・No contract exists

In this case, there is a possibility that it will be judged as a 'gift from the start' rather than a loan at all.

■ Forms that are less likely to cause issues

Conversely, if the following are in place, it is more likely to be treated as a loan.

・There is a loan agreement
・The repayment schedule is clear
・Repayments are actually being made

■ Relevant laws

Tax treatment is determined based on the Inheritance Tax Act.

■ Summary

・Interest-free does not automatically mean a gift
・However, the interest equivalent may be considered a gift
・Form and substance are important
・Transactions between relatives are scrutinized particularly strictly

In other words, 'even if it takes the form of a loan, it may be judged as a gift depending on the actual circumstances' is the reality in practice.

There is no clear line such as 'this interest rate is okay' or 'anything below this is a gift'. However, in practice, it is judged by whether it is 'unnaturally low compared to market interest rates'.

■ How to think about the criteria

For tax purposes, based on the Inheritance Tax Act,

・Whether economic benefits are being provided free of charge

is the key point. In other words, whether you are providing the interest that should have been earned originally.

■ Guidelines in practice

There is no clear legal standard, but in reality, the following are used as references.

・Market interest rates (banks, etc.)

For example,

・Mortgage loans
・Card loans
・Personal loans

and other general interest rates.

・National Tax Agency's perspective (substance over form)

The tax office looks at it from the perspective of:

・Would you lend it to a third party under those conditions?

as a viewpoint.

■ Common practical guidelines

As a rough sense of scale,

・Annual interest rate 0% → Generally leans toward being a problem (the interest portion is easily treated as a gift)
・Annual interest rate 0.1% to 1% → Depends on the case
・Annual interest rate 1% or more → Relatively safe

However, this is just a guideline andnot an absolute standard.

■ How the amount is judged

What is important is not the interest rate, but the 'amount'. For example,

・Original interest: 100,000 yen per year
・Actual interest: 0 yen

In this case,there is a possibility that the 100,000 yen difference will be considered a gift.

■ Conditions that are less likely to cause problems in practice

The risk decreases if the following are met:

・There is a contract
・Repayment is actually being made
・A certain amount of interest is set

■ Summary

・There is no clear line for interest rates
・It is judged by the deviation from market interest rates
・Interest-free loans are easily considered gifts
・What matters is the 'interest equivalent amount' rather than the interest rate

In other words, the reality is that it is judged not by 'what percentage is okay,' but by 'whether it is unnatural.' is the reality.

[PR] Curse Warrior - PS5

AI-generated, for reference only.