Private loans for property investment: documenting the arrangement

A loan without a bank is lawful

A loan agreement between individuals (préstamo) is an ordinary civil contract under the Código Civil and does not require a bank. It nevertheless has formal and tax consequences easily overlooked when relatives or acquaintances transfer funds for an investment. Informally, the arrangement looks simple: one person sends money and the parties settle matters themselves. For the tax authority, it is an event requiring an explanation. Without documentation, that explanation has to be constructed afterwards, which is almost always worse than recording it upfront.

The main risk is classification as a gift

If a transfer between individuals is undocumented, the authority may treat it as a concealed gift (donación), rather than a repayable loan. Spanish gift tax is often substantially less favourable than the consequences of an ordinary loan. A private or notarised agreement recording the amount, term and interest conditions, together with notification to the tax authority where appropriate, helps establish that the transfer is a loan rather than a gift under another name.

Interest is taxable income

Where interest is charged, the lender must report it as rendimiento del capital mobiliario in their IRPF return. Interest-free private loans are permitted in principle, but in some cases, depending on the amount and relationship between the parties, the lack of interest may raise valuation and gift-tax questions. This genuinely depends on the circumstances and calls for a tax specialist rather than a universal rule.

Mistakes are easy in either direction: charging a token rate without recognising that it still generates taxable lender income, or making an interest-free loan without checking whether the particular amount and relationship could raise concealed-gift concerns.

Why this matters to an investor

Where family or personal-network capital enters alongside the project's own structure, transferring it 'on trust' without paperwork creates an avoidable tax risk. Proper documentation from day one protects both parties in an inspection, rather than just on paper. For the partnership structure, see our approach; use the calculator to assess the transaction figures.

Conclusion

Private lending can provide project capital, but needs an agreement, clear interest terms and, in doubtful cases, tax advice before the transfer rather than after it. An hour of a lawyer's or adviser's work is negligible beside the consequences of a later reclassification as a gift.