For various reasons, there are cases in which parents decide to anticipate an inheritance or proceed with divisions during their lifetime. Real estate is often part of the pie. This raises questions about whether the donation of real estate is subject to tax. And if so, how much and when should I pay if I donate or receive assets?
The legal regime for donations is established in the Civil Code: “a donation is a contract by which a person, out of generosity and at the expense of their assets, freely disposes of a thing or a right, or assumes an obligation, for the benefit of the other contracting party.”
A donation is therefore an act that consists of voluntarily giving something to someone who accepts this generosity. The person making the donation, the donor, reduces their assets to the same extent that they increase the assets of the person receiving the donation, the donee.
From a tax perspective, donations are regulated by the Stamp Duty Code, which stipulates in Article 1(1) that it “applies to all acts, contracts, documents, titles, papers, and other legal facts or situations provided for in the General Table, including the free transfer of assets,” which covers the act of donating any asset, particularly real estate.
Thus, although donations are associated with the characteristic of being free of charge, they are nevertheless subject to stamp duty, with one or two amounts from the general stamp duty table being applied, depending on the situation in question. Under current legislation, donations of real estate are subject to a rate of 0.8% plus a rate of 10%, with the total tax payable equal to 10.8% of the donated real estate.
However, if the donations are made to a spouse or a direct ascendant or descendant, they are exempt from tax, and therefore the above rates do not apply. For example, in terms of taxation, the donation of real estate from parents to children is exempt from item 1.2 of the General Stamp Duty Table, which has a rate of 10%.
Another peculiarity of donations is that they are not legally considered income and are therefore not subject to personal income tax. In other words, donations do not need to be declared. However, the beneficiary of the donation must always notify the Tax Authority (AT) of the delivery of the donated asset by completing Form 1 by the end of the third month following the respective donation. Remember that Stamp Duty is always settled by the AT.
It should be noted that in recent years, due to the country's difficult public finance situation, the AT has been paying more attention to this tax, with the introduction of various tax debt collection procedures.
Regarding the amount of tax payable, it should be noted that if it exceeds €1,000, the AT allows the amount to be paid in a maximum of 10 installments, with a minimum amount per installment of €200. The first installment must be paid in the second month following the notification, and the remaining installments must be paid every six months.
It should also be noted that, if alternatively the tax is paid in full by the end of the second month following the notification, the AT provides for a 0.5% reduction on the amount of each installment into which the tax would have to be divided, with the exception of the first installment.
Conversely, if payment is not made within the established deadlines, interest on arrears will begin to be charged on the outstanding amounts.
source: idealistanews