Receiving help from parents to buy a home is a common practice, but it can have unexpected consequences if it is not formalized correctly. This is what happened to a young Frenchman who received a loan of 200,000 euros from his father to purchase his home, but which ended up being considered by the Treasury as a hidden donation, just as would have happened in Spain.to.
As explained by the notary Aurélien Geoffroy in the middle Figaro Real Estate, This type of situation is more common than it seems. “This type of situation occurs very frequently,” he points out. Although the law allows you to donate large amounts of money tax-free from time to time, it is also possible to formalize a loan between family members, as long as a series of formal requirements are met and, above all, it is demonstrated that there is a real intention to repay.
In this case, the loan was formalized with a contract that established a repayment period of 20 years without interest, which implied monthly payments of 833.33 euros. However, the problem arose when the son did not make any payments. Behind him father’s death and in the tax review process, the authorities detected that there had been no refunds, which set off alarm bells.
Treasury reclassifies the loan as a donation and demands taxes
Given the lack of payments, the administration concluded that there was no real intention to recover the money. “At that point, the consequences are terrible,” warns the notary. As a result, the loan was reclassified as a donation, which implies the obligation to pay the corresponding tax.
After applying the deduction of 100,000 euros, the remaining 100,000 euros were subject to taxation. According to the tax rate applicable in France, the son had to pay 18,194 euros in gift tax. Default interest of 0.20% per month was added to this amount and also the possibility of penalties of up to 40% or even 80%, which would mean that the son would have to pay between 27,655 and 34,932 euros.
What the Treasury in Spain says about these cases
In Spain, this type of operations can also have similar tax consequences if they are not justified correctly. When a child receives money from his parents and there is no real return, the Tax Agency may consider that it is a donation.
In that case, the child is obliged to pay the Inheritance and Donation Tax (ISD), declaring the amount received and paying the corresponding tax according to their autonomous community.
Furthermore, if the Treasury detects that the supposed loan is not being repaid or that there is no real intention to do so, it can claim the tax, add late payment interest and impose penalties, which can make the operation considerably more expensive, as happened in this case.