Loans and gifts

There are many reasons for transferring funds within a family.

Often, parents wish to provide financial support to their children – either as an advance on inheritance or as assistance while their adult children are establishing themselves, and while the parents are still able to witness their wealth being put to good use.

In other cases, loans may be granted from parents to children, or between siblings – for instance where one sibling takes over the family business or a real property, and the remaining siblings must be compensated.

Family loans have the advantage that they are not considered gifts or inheritance, which would otherwise be taxable. Gifts from parents to children are subject to 15% estate and gift tax. Between siblings, larger cash gifts are subject to full income taxation.

If a business is involved in such loan arrangements – whether under the Danish business taxation scheme (virksomhedsordningen) or through a company (ApS or A/S) – the consequences of lending or gifting funds to family members can be severe. This is sometimes referred to as “triple taxation’’.

Whenever funds are to be loaned or otherwise transferred within the family, it is essential to seek professional advice. Not only must the funds be structured appropriately, but strict requirements exist regarding documentation, timing of agreements, and other factors which may prove decisive.

Family loans are often a suitable tool to complement estate planning or to facilitate tax-optimized transfers or disposals of real property.

PrivatRevision is well-equipped to provide guidance on establishing appropriate loan arrangements. Our expertise in tax law, property law, and family law enables us to design comprehensive strategies in which family loans may form one of several elements.

We also assist with simpler loan arrangements, where the primary concern is to ensure that all formalities are properly observed, that signatures are duly documented, and that a professionally insured advisor provides assurance for the arrangement.

PrivatRevision generally charges DKK 1,500 including VAT per promissory note for loan arrangements up to DKK 1 million. For larger amounts, fees are determined individually. Promissory notes are tailored to the specific circumstances and signed either before witnesses or using MitID (the Danish digital signature system).