Donation and Gifts

Under what conditions can a gift be considered as a donation?

The distinction between gift and donation is crucial since the law and the tax system attach completely different effects to it. While this distinction is important, the boundary between gift and donation is far from clear.

The importance of the distinction between a gift and a donation

From a legal point of view, a gift does not entail any specific consequences between the giver and the receiver, except of course the definitive transfer of ownership of the property offered. This point should be emphasised because a gift cannot in any case be returned to the donor by any contractual clause, or for any reason, such as for example ingratitude.

As regards gifts between spouses, the rule is identical, and divorce cannot result in the compulsory return by each ex-spouse of gifts received from the other during the marriage. The only special case, recognised by French case law, concerns gifts of family jewellery, for which the judge may impose the return to the giver at the dissolution of the marriage.

On the other hand, if the gift is reclassified as a donation, then all the legal consequences attached to the donation apply. In particular, the gift requalified as a donation will have to be taken into account in the calculation of the estate at the death of the donor, as well as in the calculation of the reserved portion of each heir (if the inheritance law applicable to the estate recognises this notion). Under these conditions, the "gift" may be reducible. Finally, in the event of divorce, the donor spouse may, under certain conditions, request restitution of the gift, which is reclassified as a donation.

Is a gift subject to tax?

A gift is in principle not subject to any gift tax. Since it is not a donation, it does not have to be added to the donor's estate to assess inheritance tax. The gift is not a deductible expense from the income of the giver, nor a taxable income for the recipient.

On the other hand, if the gift is reclassified as a donation, all the following consequences may apply: possible liability for donation tax, reporting to the estate with an impact on the inheritance tax due by the beneficiary of the gift and, possibly, tax penalties for good measure if the administration considers that the description of the gift is clearly and knowingly usurped by the parties.

Under what circumstances can a gift be reclassified as a donation?

The requalification of a gift as a donation depends on the examination of the specific circumstances of each case. In the event of a dispute, the judge will assess those factual circumstances.

And in particular:

What is the use of the gift?

A gift is given on the occasion of certain events. As an example, it is common to offer a gift on the occasion of a birthday, the end-of-year celebrations, the passing of an examination or a marriage, union or birth.

This notion of event-related use is not insignificant.

On the French side, the Court of Cassation has ruled that the judge can base his analysis on the absence of an event to determine if a gift can be reclassified as a donation.

What is the relationship between the giver and the receiver?

The relationship between the giver and the receiver of the gift is also significant either.

More distant the family link between the giver and the receiver is, the less tax administrations will admit significant gifts.

What is the giver's wealth?

The administrations and judges have an ultimately homogeneous approach. The size of the gift must be assessed according to the donor's wealth. As a consequence, is there a percentage, a ratio between the value of the gift and the wealth of the giver?

Usually it is estimated that the the amount of the gift should not exceed 1 % of the giver's wealth in Belgium and 2.50 % in France in order to be considered a gift.

However, none of these figures are officially recognised by the authorities or by the judges. Moreover, they consider that such a numerical criterion would not be compatible with the case-by-case assessment of the proportionality of the donor's wealth, taking into account his generosity.

As an exemple in France

It was held that the sum of €15,000 could not be considered a customary gift in the absence of a related event, and on the grounds that this sum paid by the father was still substantial even in view of his financial capabilities, which amounted to €2.3 million.

On the other hand, a mother's Christmas gift to her children and their families - each of which included several members - of the same amount was considered a customary gift and did not appear excessive in relation to the donor's wealth, which amounted to slightly more than €1.2 million.

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