How should we give ourselves the money to pay less taxes?

BarcelonaThe difference between giving money to a family member or lending it to them can be nil on an accounting level: at the time of the transfer, the asset impact is the same for both the giver and the recipient. However, these two valid options for monetary exchange between blood relatives have completely different tax and legal consequences.

"I always advise leaving the money because ultimately you can always give it back. You don't pay taxes on a loan; the only obligation is to return the money," Vanessa Iglesias Valiño, a lawyer specializing in family and inheritance law at the Verner Abogado firm, explains to ARA. This transaction, however, must also be declared to the Tax Agency using Form 600. "What you declare is the contract; there's no need to do it before a notary. It can be done privately, which is the most economical option," she adds. Once everything is in writing, you can go to a tax office to declare it in person.

A private, written contract

"It's advisable to indicate the repayment periods, even if they're flexible," adds Iglesias Valiño. This avoids immediate tax consequences and, in the event of an inspection, proves that there was no hidden donation. Furthermore, in practice, the money can be repaid however you wish: after 10 or 15 years, for example, or with monthly transfers.

This mechanism is commonly used to help a child start a business, buy a property, or overcome financial difficulties. "But you have to be reasonable," warns the lawyer. "If your father is 80 years old and leaves it to you for 20 years, there's no guarantee he'll survive that period, and then it could be considered a donation. If the Treasury sees this, you could have the problem of being reclaimed for the gift tax," adds Iglesias.

Reductions and Reduced Rates

While the loan avoids the tax burden, the donation is subject to inheritance and gift tax, which is collected and managed by the Generalitat (Catalan Government), but can benefit from reductions and reduced rates if formalized correctly. For example, for monetary donations to descendants (children, grandchildren, great-grandchildren, great-great-grandchildren, or four-year-olds) intended for the acquisition of this first primary residence, a 95% reduction can be applied to the amount given, with a maximum reduction of €60,000.

"In this case, it is essential that the donation be formalized in a public deed and that the acquisition of the home be completed within the following three months. The tax rate can be symbolic or very small, even when a large amount is given," explains Valiño, who adds that these criteria also apply if the same amount is paid.

For example, Joan wants to make a gift of €40,000 to her 28-year-old daughter Mireia to purchase her first home. If she declared a taxable income of €24,000 in her last tax return and her assets do not exceed €500,000, a 95% reduction will be applied, leaving her taxable income at €2,000. For these €2,000, Mireia will pay a reduced rate of 5% for this tax—since this is a transfer between taxpayers in groups I and II—so the tax payable will be reduced to €100. However, in this case, the application of the 95% reduction is conditional on the daughter purchasing the home within a maximum period of three months from the date of the gift and acquiring it in full ownership, since this reduction does not apply to the acquisition of usufruct or bare ownership.

However, if Mireia does not use this money to buy a home, the €40,000 loan is the taxable base and also the taxable amount, as no reduction is applied. Thus, this money is only subject to a reduced rate of 5% depending on the level of kinship, leaving the tax payable at €2,000. If this loan were to exceed, for example, €200,000, from that value onwards, the applicable rate in this bracket would be 7%.

Therefore, there are different conditions that come into play in the gift tax, which can vary the tax payable. All of them can be consulted on the website of the Catalan Tax Agency.