Nobody will doubt that an envelope containing a few dozen euros is a gift. But when it comes to more substantial amounts, the tax authorities can rule that it is a donation.
What amount does the tax authorities accept as a gift for a special occasion? The law does not stipulate anything about this. However, in practice it is accepted that annually up to 1 percent of the assets can be given as an occasional gift to one or more lucky people without the tax authorities considering this as a gift.
This can be during the holidays, but also on other occasions such as a birthday, a good report, a wedding or a birth. How much can be given annually therefore depends on the size of the donor’s total assets. This involves looking at the total of real estate and movable assets such as cash, shares and bonds. A grandfather with a capital of 1 million euros can hand out 10,000 euros every year to his children and grandchildren. If he only owns half of that, he must limit himself to 5,000 euros.
The money can be put in an envelope, but a bank transfer is more appropriate. The advantage is that a transfer is easier to trace. The announcement can make it clear that it is a gift, for example by stating ‘Merry Christmas’ or ‘Happy 2021’ in the announcement.
The giver can also send a letter stating that he is giving a gift. The recipient does not have to reply to the letter. This should be the case if it concerns a donation: donations must be explicitly accepted by the donee.
The money can be put in an envelope, but a bank transfer is more appropriate.
The main difference between an occasional gift compared to a gift is that no gift tax is payable on the occasional gift. Donations can be taxed. With a hand gift, the money is literally donated from hand to hand and no gift tax has to be paid. But if the donor dies within three years, inheritance tax will have to be paid on the donated amount.
The Flemish coalition agreement provided that this ‘suspicious period’ would be extended from 2021 to four years. But that extension will not be forthcoming.
Those who want to avoid the risk of inheritance tax can register the donation and pay gift tax. If the donor lives in the Flemish or Brussels region, the rate is 3 percent for gifts between (grand) parents, (grand) children, married and legally cohabiting partners and 7 percent for all others. Once the gift tax has been paid, inheritance tax must never be paid on the donated amount.
A second advantage is that an occasional gift is definitive. It is not taken into account in the settlement of the estate. This offers the possibility to give one child more than another without the least fortunate having to complain about it later.
Donations are taken into account to check whether each heir has received his minimum share. All children together are always entitled to half of the estate.