We first briefly explain the principles an informal gift, followed by some points of interest for a number of countries.
1. The gift by way of bank transfer: general
The Belgian principles regarding the gift by way of bank transfer are well known. In principle, the gift of bankable assets is an informal gift. The existence of such a gift is derived from a transfer of assets (i.e. the bank transfer) as well as other documents (letters, supporting documents, etc... ) from which, among other things, the donator’s intention to donate can be derived. A gift by way of bank transfer is possible for cash, but also for other investments held on account (shares, bonds, etc...).
Drawing up supporting documents is also important to be able to prove when the gift took place, as well as what the conditions were that the donor wanted to impose on the donee (e.g. a condition of return by which the donated property reverts to the donor in the event of the donee’s pre-decease). Note also that in Belgian practice such a condition is often optionally stipulated but may have consequences in foreign tax law. In an international context, and in order to exclude any discussion about this, an explicit choice of law should be included for Belgian law.
The process is as follows: the donor announces in advance that he wants to make a donation, for what amount and under what conditions. Then the transfer can be executed, and finally documents are drawn up (a so-called Pacte adjoint) showing that the donee has accepted the donation and also agrees to the conditions imposed by the donor.
No gift tax is due on such an informal gift. If the donor dies within three years (Flanders, Brussels) or five years (Wallonia) as a resident of the Flemish, Brussels or Walloon region, and has not previously registered the gift, inheritance tax is still due by the donee on the amount received. The inheritance tax can be up to 27% in direct line (above €250,000) in Flanders and up to 30% (above €500,000) in Brussels and Wallonia.
If the donor falls ill within this period, gift tax can still be paid spontaneously, by registering the supporting documents. In that case, 3% gift tax is due in Flanders and Brussels and 3.3% in Wallonia when it comes to gifts between parents and (grand)children. And no inheritance tax will be due in case of death within 3/5 years.
Note that to date, the entire donation process can be done digitally.
2. Cross-border context: what if your children live abroad?
If your child lives in Luxembourg, there are no additional tax concerns. Under Luxembourg law, registration duties are levied only at the level of the donor. Consequently, if a gift by way of bank transfer is made by a Belgian resident, and the donation documents are not registered in Luxembourg, no Luxembourg gift tax is due.
The Netherlands also does not levy gift tax if a Dutch resident receives a gift. A point of attention for a donee living in the Netherlands relates to income tax. For instance, the Netherlands has the so-called Box 3-taxation, which consists of a levy on the taxable income from savings and investments. In Box 3, tax is levied on an assumed, notional return you are supposed to earn on your assets. Following the Dutch Supreme Court’s ‘Christmas ruling’ of 24 December 2021, a temporary (quasi)zero return currently applies to savings. In contrast, if you donate an investment portfolio, a notional return of 6.17% will apply in 2023.
The reference date for this Box 3 tax is 1 January.
If you donate to your child in the Netherlands, his or her assets will increase and your child will therefore risk being taxed in Box 3, if it concerns investments.
Does the Netherlands then never levy tax if a non-resident donates?
If a property located in the Netherlands is donated, transfer tax is due (previously 8%, but the rate increased to 10.4% since 1 January 2023). This transfer tax also applies in certain cases if shares in property companies are donated (which in principle hold at least 30% of a property located in the Netherlands). In that case, there may be double taxation if the donor opts to pay 3% gift tax in Belgium: there are no double taxation prevention rules for this situation in Belgium or the Netherlands.
The United Kingdom
The UK also does not levy gift tax if the beneficiary of the gift by way of bank transfer is resident in the UK. This applies both to the donation of Belgian bank balances, investment portfolios etc., as well as for assets held in the UK. The same applies to UK property donated.
However, there are a few other concerns: if a non-resident donates UK property and dies within 7 years, these gifts are still subject to UK inheritance tax. Gifts made in the three years before death are subject to 40% tax. Older gifts are taxable at lower rates (i.e. 32% in year 4, 24% in year 5, 16% in year 6, and 8% in year 7).
Similarly, the gift of funds to finance a UK property or to repay a loan taken out by the donee when purchasing a UK property, potentially triggers the imposition of UK inheritance tax. This risk will arise if a link between the gift and the UK property would be apparent from the gift documents (for example, because the donor has included as an encumbrance of the gift the obligation for the donee to use the donated funds to purchase a UK property or to repay an outstanding loan on a UK property).
Finally, and this is completely different from Belgium, attaching all kinds of charges and conditions to a gift may potentially result in the donor nevertheless reserving some rights as a result of which the donated property will de facto be deemed to still be part of the donor’s estate. An example is the gift of a UK home where the donor reserves the right to continue living there. Even in case of death after the 7-year period, UK inheritance tax will still be payable on death. A similar risk can also arise with gifts by way of bank transfer if conditions are attached (e.g. a conventional clause of return with property replacement).
Unlike in Belgium, the Netherlands, Luxembourg or the UK, France does levy gift tax (called “transitional rights free of charge”) if the donee has been resident in France for more than six years during the last ten years.
A gift by way of bank transfer of non-French property (e.g. a Belgian investment portfolio) to a French resident will thus be taxable in France if the gift is notified to the French administration.
In France, it is possible to choose whether or not to register such a gift. French tax law stipulates that a gift by way of handover of the asset, which includes the gift by way of bank transfer, is not subject to mandatory registration and is therefore not taxable as long as it has not been the subject of a “révélation” or disclosure: as long as it has not been disclosed (voluntarily or, according to the tax authorities, on the occasion of a response to the Tax Administration in the context of an audit). In principle, the taxable event for gift tax purposes is the date of the disclosure of the gift by way of handover of the asset.
If a gift by way of bank transfer is disclosed in France, it will be taxable for gift tax purposes. However, a number of exemptions apply. Thus, between parents and children, there is a tax-free allowance of €100,000 per gift and per donee, per fifteen-year period. The tax-free allowance can be filled by multiple gifts during this period. A tax-free allowance of €31,865 applies to grandchildren. Moreover, certain family gifts of sums of money are subject to an exemption of €31,865, when registered, which can be cumulated with the abovementioned allowances. Otherwise, the gift tax rates range from 5% (below €8,000) to 45% (above €1,805,677) in the direct line and are calculated taking into account gifts made over the past 15 years.
Moreover, in certain cases it is mandatory to notify the French administration of a gift by way of bank transfer: for example, in the event of death, the previous gifts by way of bank transfer must be mentioned. Also in French gift deeds, for example, previous gifts (such as gifts by way of bank transfer) between parties must be listed, including the amount, date of gift and/or registration,... this for the purpose of determining the applicable rate on the gift and the 15-year period as far as tax-free allowances are concerned. There will also be a tax due on donations on which French gift tax has not previously been paid.
Therefore, if you register the gift by way of bank transfer in Belgium and France, you may be faced with double taxation. However, in the case of gifts of non-French assets, France does allow the crediting of foreign gift tax so that double taxation is avoided.
Like France, Germany applies the rule that a gift is in principle taxable on the part of the donee residing in Germany. Germany also grants a tax-free allowance. Here, there is a 10-year renewal period during which each child (per parent) can enjoy a tax-free allowance of €400,000. Grandchildren enjoy a lower tax-free allowance (of €200,000) if their parent is still alive. Germany further applies equalisation between gift and inheritance tax in terms of rates and deductions. If your children have already enjoyed an exemption at €400,000 in German gift tax over the past 10 years, they will not be able to claim this tax-free allowance in inheritance tax if the donor dies within 10 years of the gift. The gift and inheritance tax rates are further progressive, with rates ranging from 7% (up to €75,000) to 30% (above €26 million). Should the donor opt to pay 3% gift tax in Belgium, it is possible to avoid double taxation based on internal German regulations.
As you can see, there are still a number of important points to consider when dealing with something as seemingly simple as a gift by way of bank transfer. This is even more so if there are cross-border elements. Do not hesitate to contact us when faced with these issues.