These are difficult times for young people. More and more parents are looking for a way to lend a hand to their children, whether it is to provide a down payment on a home, start a business or simply to help them with the economic problems they are going through. Added to all this is the fear that sooner rather than later there will be one and Donations (as the Government has dropped on several occasions), which would trigger the cost in some communities such as Madrid, where the tax is subsidized almost in its whole. This combination of factors has intensified the search for formulas to deliver money to a family member in anticipation of a possible government move, as revealed by several notaries to this newspaper.
The two legal channels that are commonly used are donation and loan. They are different ways, with different processes that deserve a section each. The natural option to give or deliver an amount of money to someone for life is a donation, which entails a series of expenses in the process and, of course, has a fiscal cost for the donee (the one who receives the donation) who . The Donation Tax is a tax that is ceded to the autonomous communities and varies greatly depending on the region.
This option is gaining popularity, especially in regions with bonuses and reductions where time is running out. Luis Prados, notary of the College of Madrid, reveals to elEconomista.es that “there has been a huge rise in the demand for deeds to formalize donations, they are skyrocketing, people are panicking about the government we currently have, about the influence of Podemos in tax matters”. This expert reveals that most donations are from parents to children: “Many donations of money, housing and everything are made, the basic argument is fear of tax changes.”
This tax has a state fixed rate that is applied to the liquidable base (the value of the donation) ranging from 7.65% to 34% (depending on the value of the liquidable base itself). Once the rate is applied, the tax rate is calculated by means of a multiplier coefficient, which can be from 1% to 2.4%. This coefficient depends on the group to which the person receiving the donation belongs (age and degree of kinship).
In addition, the final amount to be paid can vary enormously depending on the bonuses and reductions that are applied by the autonomous community. For example, in the Community of Madrid, bonuses and reductions (being compatible) combined can leave the tax at 0%. The latter is what could change if the Government or establishing a mandatory minimum for all the Autonomous Communities, as they argue to avoid ‘fiscal dumping’.
Javier Fernández-Lasquetty, Minister of Finance and Public Function of the Community of Madrid, explained a few days ago in a plenary session that the region was collecting more through Donations despite the new bonuses and reductions that have been applied since 2019.
In the Community of Madrid, when the donee is a descendant (son, grandson…), spouse or ascendant (parents, grandparents…) and adopters or adoptees (Groups I and II), they are entitled to apply a bonus of 99 % of the tax rate. This means that they will only have to enter 1% of the tax quota (not from the donation, but from the tax quota, which is much lower).
Steps to follow and practical example
For the application of this bonus, it will be necessary for the donation to be presented in a public document (before a notary, whose price can be around 300-500 euros for a cash donation of 50,000 euros). This will be one of the extra costs of this option with respect to the loan. In addition, when the donation is in cash, it will be necessary to justify the origin of the donated funds (income from work, dividends, sale of a house…).
For example, a father who donates 196,100 euros to his son in Madrid. The son, who is the one who receives the donation, has to pay the Gift Tax. Once the appropriate calculations were made, a tax fee of 31,771 euros would come out, and applying the discount regulated by the Community of Madrid, they would only pay 307 euros (1% of 31,771, which is the tax fee). The total cost would be 707 euros (notary and tax) for a donation of 196,100 euros.
But continuing with the example of Madrid, the fiscal impact on the donee can be further reduced. (we are always talking about money) formalized from January 1, 2019 in favor of the spouse, children, grandchildren or siblings of the donor, a reduction of 100% of the donation may be applied, with the maximum limit of 250,000 euros.
However, it is necessary that the donee allocate all the money within a year, from the donation, to one of the following purposes: acquisition of habitual residence, purchase of shares and social participations or the acquisition of goods, services and rights. for the development of an individual company or a professional business of the donee.
The destination of the amounts donated must be included in the public document. The filing deadline is 30 business days to settle the tax. The cost would be the presentation of the private document before a notary so that it acquires the connotation of a public document, that is, about 400 euros.
Donations in other Autonomous Communities
Other regions with significant discounts in Groups I and II are Cantabria with 100%, Aragón, Galicia and Murcia with 99%. In La Rioja the deduction is 99% in general, or 50% if the tax base exceeds €400,000. In Castilla-La Mancha a bonus from 95 to 85% is applied (from the latter of €240,000).
For example, in the Balearic Islands only 7% of the liquidable base is paid. In the Canary Islands, Group II is discounted by 99.9% when the fee does not exceed 55,000 euros, and in a decreasing manner thereafter. In Catalonia, the bonus is 99% as long as the tax base does not exceed 100,000 euros. However, a recent change reduces this bonus to 60% for descendants over 21 years of age.
What if I just want to lend the money?
The other option. To give legality to this route, a contract needs to be made, which in this case can be private, and therefore does not need to be elevated to a public deed, which represents significant savings since notary fees do not have to be paid.
The contract between individuals must contain the names, surnames and identification of those involved, the amount that is lent, the term in which that money is going to be repaid and the interest on the loan itself (). This gives individuals great freedom, since if they are father and son, extremely advantageous conditions can be established: a loan to be repaid in 50 years and with 0% interest, for example.
However, it is necessary to present the contract and the documentation at the Tax Office where the interested parties have their fiscal domicile. In this way, the contract is formalized and the Property Transfer Tax is settled. This is a mere formality, since the loan between individuals is exempt from paying any tax, but the corresponding form must be filled out and delivered to the Tax Office.
There will be those who have thought that then the best option is to make a loan contract, deliver the money and simply let time pass without requesting the return of the principal to the beneficiary. It would be a practically free option. However, this act is known as a ‘disguised donation’ and is prosecuted by the Tax and Treasury Agency. If the day comes, the person who received the loan is unable to demonstrate how he has repaid that money, the economic consequences can be significant: a fine plus default interest.
Luis Prados believes that this type of fraud is small in the regions where the Tax on Donations has bonuses, but “if this tax goes up, black money would be generated, nowadays in Madrid it doesn’t make sense to make a loan when you have a figure that allows everything to be done clearly, the discounts allow there to be no fraud with these operations in which ‘disguised donations’ are made through loans”. A higher tax rate would lead to the search for alternative formulas (perhaps illegal) to make donations.
Facebook Comments
Disqus