1. Why Formalize the Gift?
Proper documentation is essential when gifting money to your child. It helps avoid potential legal or tax issues with the authorities. Furthermore, the cost of formalizing a gift is relatively low, making it a smart decision from both a risk and financial perspective.
2. Steps to Formalize a Gift of Money
A. Prepare the Documentation
Gather all necessary documentation for the appointment with the notary.
Be prepared to provide evidence of the source of the funds.
B. Review the Public Deed
Carefully review the deed before signing.
Make sure it clearly states the amount of the gift, the parties involved, and any specific conditions.
C. Sign Before a Notary
Both the donor and the recipient must sign the document before a notary to make the gift official.
D. Paying Gift Tax
The recipient (your child) is responsible for declaring the gift by filing tax form 651 within 30 business days.
3. Private Gifts (Without a Notary)
You can transfer money privately, but the tax obligations remain unchanged.
The only difference is that the transaction does not go through a notary.
Note: Skipping the notary appointment generally means you cannot access certain tax benefits.
4. Advantages of Donating Money for a Home Purchase
For the donor:
There is no tax obligation, as there is no capital gain involved.
Notary participation is optional, which can result in cost savings.
For the recipient:
Only gift tax is required, often with significant reductions in the case of transfers from parents to children.
Some regions (e.g., Madrid) offer substantial deductions (up to 100% for the first €250,000) when the money is used to purchase a primary residence, provided the conditions are met.
5. How much can you donate?
There is no legal maximum: you can donate as much as you like.
Tax benefits may have limits: for example, if a region only grants tax exemptions up to €250,000 and you donate €500,000, only the first €250,000 receives special treatment.
Key points:
Lower donation amounts generally mean greater tax advantages.
Gifts and inheritances from parents to children are among the most tax-advantaged, especially for children under 21.
6. Declaring transfers: How much must be reported beforehand?
All gifts must be declared by law, regardless of the amount.
In practice, small and informal transfers often go unreported, but if you transfer more than €10,000, banks are required to notify the tax authorities.
Spanish Law 7/2012 focuses on anti-fraud measures: any bank transaction over €10,000 is closely monitored to prevent money laundering.
7. Best Practices
Always declare large donations to avoid legal issues. Tax costs are usually minimal, especially for donations between parents and children.
Proper documentation and compliance help you avoid penalties and ensure peace of mind.
Summary:
Giving money to your child for a home purchase is simple if you follow the right steps and comply with legal requirements. Formalizing the process and declaring the donation minimizes risk and may even offer tax advantages, especially in regions with specific benefits for family donations.
