A growing trend among millionaires is not to leave an inheritance to their children. Bill Gates or Warren Buffett are good examples of this new trend that aims to transfer wealth from parents to children through alternative means.

But one need not go to such vast fortunes to find cases of parents wishing to pass on some of their assets to their children while they are still young.

Helping children is a natural instinctIt is very normal for parents to want to help their children financially or just give them a gift when they become independent and start studying abroad.

But what comes as a natural instinct for every parent is not like giving your child a salary at the end of the week and is taxable.

Donations of assets and personal propertyAccording to Article 618 of the Civil Code, “donation is the free disposition of a thing by a person in favor of another who accepts it.”

In this way, as defined in the Inheritance and Gift Tax legislation, donating money, assets or other types of assets to your children will be considered a donation by the Tax Office. This means that the donation must meet a number of qualifications and will incur taxes similar to those that would be paid in the case of inheritance, without any threshold value. Namely: capital gains tax, personal income tax and inheritance and gift tax.

It seems easier when you donate money, but the Treasury is watchingIf the donation is a small amount of money, as is often the case, the temptation is to give it to them. So how much money can you give to a child without declaring it as a donation?

Technically, even giving a euro is considered a donation, as the law does not set any limits requiring donations to be declared. However, as Abogados y Inheritances notes, it is not uncommon for the Treasury to pursue small deliveries of money or gifts of little value.

However, due to regulations regarding the prevention of money laundering and terrorist financing, the Treasury may request banking information when it detects certain movements; therefore, it is useful to take this into consideration:

• More than 3,000 euros in cash income to verify that its source is legitimate profit.
• It comes in 500 euro notes. These are the notes most followed by the Treasury because they are used in criminal activities. Putting a large amount of cash inside these notes would raise a lot of suspicion.
• Recurring income. Fixed, periodic amounts of income from the same source indicate a type of commercial transaction, and by its nature, the Treasury will show interest. Small amounts sent to the same account in a short time have the same effect.
• Transfers. Organizations report loans exceeding €6,000 and transactions of €10,000 or more, whether bank transfers or cash movements.

How is money donated by parents to children taxed? Donations, like inheritances, are taxed under the Donations and Inheritance Tax. Each autonomous community administers this tax at its own discretion, so taxation will depend on the autonomous community in which the donor has resided in the last five years.

Madrid, Basque Country, Murcia, Castilla-La Mancha, Asturias, Balearic Islands, Canary Islands, Galicia, Extremadura, La Rioja and Navarra are exempt from this tax or reduced to 99.9% for spouses, parents and children. Andalusia reduces this tax by 99% and other communities exempt up to 400,000 euros. If the donation exceeds this limit, it must be taxed.

This is not a donation, but I will “lend” it to you.If the purpose of the donation is to help financially at a complex stage, the donation has an alternative: formalizing an interest-free loan.

This assumption is not subject to tax or expenses and only a special loan agreement needs to be formalized and the donor will have to submit a Property Transfer Tax discharge at zero cost.

But this document should indicate the deadlines and how the money will be returned; it can be extended as much as desired, which makes it especially interesting for donating large amounts of money.

What happens if a donation is not reported? If you choose not to declare the donation and the Treasury finds that the money was received without justification for its source, this will be interpreted as an unjustified asset. In this case, as stated by the OCU, personal income tax is taxed at a marginal rate that can reach up to 56% of the amount donated and the corresponding penalty.

On Xataka | Why do millionaires like Zuckerberg and Gates decide not to leave all their money to their children?
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