How much money can you donate to your son or daughter without paying taxes?

Donations from parents to children are extremely common. After all, all parents dream of giving their children the best and helping them in the most important moments of their lives, such as the purchase of a house or a master's degree at a private university, for example. The problem is that it is often unclear how much money can be donated to a child without paying taxes or how the corresponding taxes should be paid.

What is a parent-child donation?

This is the first thing to clarify. Donations from parents to children are acts of generosity in which one or both parents give something to their descendants without asking for anything in return, i.e. without making a profit. This can be property, shares or cash, which is the case here.

How much is paid for a donation?

The amount of the donation does not matter, as the law does not say anything about it. In Spain, any donation is subject to one or two taxes, depending on the case. Let's take a look at them.

Gift tax

Inheritance and gift tax is the most important of the taxes levied on this type of transaction between parents and children. It is a progressive tax rate, which means that it increases as the amount donated increases.

For example, in general, donations up to 8,000 euros are taxed at a rate of 7.65%. Likewise, the maximum is reached when the donation exceeds 200,000 euros, when it rises to 34%. However, it should be borne in mind that this is a tax managed by the autonomous communities and that many of them apply tax rebates.

Gift tax in Madrid from parents to children

The most obvious example is that of the Community of Madrid, where our law firm is located. In this case, gift tax is reduced by 99% when it is paid between first-degree relatives (parents, children and spouses), it is notarised in a public deed and payment is made within a maximum period of 30 days from receipt of the donation.

There are other Autonomous Communities, such as Andalusia, where similar allowances are available. Check the legislation in force in your region or contact us if you have any doubts.

Who pays the gift tax?

In this case, it does not matter in which autonomous community of Spain the person resides at the time of the donation. When donating money to a child, the person responsible for paying this tax is the descendant, i.e. the person who receives the economic amount.

Personal income tax (IRPF)

In certain cases, it is compulsory for donations to children to appear on the tax return. In this case, in the payer's tax return. However, this is only a legal requirement when the money donated comes from assets that have generated capital gains.

For example, imagine you have sold a house for 250,000 euros. Of this amount, you have donated 200,000 euros to your children. The remaining 50,000 euros must appear in the annual income tax return as a capital gain and will be taxed at between 19% and 28%, depending on the case.

This clarification is very important, because if the money comes from your savings, there is no capital gain and therefore you will have nothing to declare.

But how much money can be given without declaring it?

As we have already said, the law does not contemplate a minimum threshold and, therefore, all donations are subject to tax, however small they may be.

However, we are not fooling ourselves if we say that not all donations are declared. For example, under normal conditions, the Tax Agency is not going to prosecute you or your child if you take out 1,000 euros from the ATM and hand it over to them or if you make a Bizum for the maximum amount allowed by your bank.

These are examples of how to donate money to a child without paying taxes. However, when you need or want to transfer large amounts of money, it makes no sense. Keep in mind that all banks are obliged to inform the tax office of all transactions exceeding 3,000 euros or made with 500-euro notes.

If you are caught, you will have to pay the full gift tax and face a penalty. Furthermore, given the impossibility of paying in cash amounts exceeding 1,000 euros due to the law against money laundering and the bonuses offered by Madrid and other autonomous communities, it is clear that it is not worth taking a gamble.

How to make a donation of money to a child

For a donation to be valid and formal in legal terms, a series of steps must be followed. Although it is true that, in many cases, the law allows the transfer of assets by means of a private document, the most advisable thing to do is to go to a notary to draw up a public deed of the operation. But why?

• Legal security: this document makes it clear that there is a will to donate and prevents possible problems in the future.
• Discounts: many autonomous communities require the delivery of this document in order to apply their discounts on gift tax.
• Proof: it will serve to demonstrate to the Tax Agency where the money comes from, if they require it at some point.

To execute the notarial deed, it is only necessary to provide the ID cards of the donors and the recipients and the document that informs about the origin of the money. For example, a bank statement showing that it is the result of savings. You will also need to provide proof of the bank transfer from parent to child, where it is advisable for the concept to appear as ‘donation from parent to child’ in order to maintain traceability.

Once you have the notarial deed in your possession, you will have 30 working days to pay the gift tax. To do so, you will have to fill in form 651, which may be slightly different in Madrid than in other regions, although it will be essentially the same.

Practical examples

To better understand the advantages of the subsidies in the Community of Madrid, we will give a couple of practical examples.

How much tax is payable on a donation of €10,000?

Given the progressive nature of gift tax, a donation of 10,000 euros would be taxed at a general rate of 7.65% (765 euros). However, when applying the 99% rebate, it would be less than 8 euros. And, if the purpose of the donation was to facilitate the purchase of a home by the descendant, it would be completely exempt from taxation.

How much do you pay for a donation of 60,000 euros?

A donation of 60,000 euros would be taxed at 13.6% gift tax, which would mean a total amount of 8,160 euros. By applying the 99% rebate, you would only have to pay 82.60 euros.

So if my parent gives me money as a gift, do I have to declare it?

The answer is that, legally, you are obliged to do so, no matter how much he or she donates to you. After all that we have just said, we think it is clear enough that it is not worth taking a gamble and not paying gift tax. In any case, if you have any doubts, please contact our lawyers specialised in inheritance and donations and they will advise you on everything you need.