From a legal point of view, a donation means that a person gives something or an asset that he or she owns, to another person without compensation. The law considers that the recipient receives income from the asset and is therefore subject to taxation.
Do I need to sign a contract to make a donation?
If the value of the donated item is not high enough to require a transfer, there is no contract to be signed. For example, a gift for a friend’s birthday.
If the donation involves the transfer of an item, such as a property or a car, then both parties will need to sign a donation contract.
Do I have to pay tax on a cash donation?
Yes. For example, if a parent remits their own money to their child to buy a house, the money will be subject to tax on the donation.
In real life, it is relatively common for parents to give money to their children. Although in theory it needs to be declared and taxed, in practice, however, if the amount is small, for example just a few hundred dollars to buy a computer for the child, the tax office will not regulate it.
Do I have to pay personal income tax? No, you do not. For example, parents who transfer property to their children’s name will have to pay tax on the donation, but the house is not considered income for the purposes of personal income tax and does not have to be declared.
How much tax do I have to pay?
In simple terms the tax payable is equal to the taxable base multiplied by a certain tax rate.
The amount of tax to be paid depends on three factors:
- the donor and the recipient. In Madrid, for example, parents who donate to their children pay only 1% of the tax.
- the donee’s property. If the donee already has a lot of assets, he/she will have to pay more tax.
- the value of the donated assets (i.e. the taxable base).
The percentage levied is set by each regional government, so it varies from one to the other and generally lies around 5%-10%. If the donation is of property, people should be subject to the regional regulations of the area where the property is located. If the donation is of other assets, the regulations of the recipient’s place of residence should prevail.
How long do I have to declare?
Within 30 days. This 30 days starts from the day the donation contract is signed. If the donation is for money, the date of the remittance should be taken into account.
If you are caught not declaring your donation, you will have to pay tax plus interest and late fees. There is also the possibility of a fine.
How do I declare my gift tax?
The tax return is filed at the tax office of each region. You need to file a return through Model 651, which is now also available online in most regions.
