Donation and Gifts

Under what conditions can a gift be considered 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 - and in essence as a manual donation of course - 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 not subject to any gift tax. Since it is not a gift, it does not have to be added to the donor's estate to assess inheritance tax. And, as Talleyrand said, "if it goes without saying, then it will go even better if we say it", 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, then all the tax rules pertaining to a manual donation 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, 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, it is the judge who will assess those factual circumstances.

The Board will consider the following:

What is the use of the gift?

A gift is given on the occasion of certain events, in accordance with a custom. By way of example, it is common to give 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.

For example, on the French side, a plaintiff sought to have it said that the circumstance in which a gift is made is inoperative on the qualification of the gift as a donation, and therefore that one can make a gift - well, a large gift - in any circumstance. No such luck! The French Court of Cassation has ruled that the judge can base his analysis on the absence of an event that would allow the transaction to be considered a customary gift.

What is the relationship between the giver and the receiver?

The relationship between the giver and the receiver of the gift is not insignificant either. In 1936, in his "Manual of Cultural Anthropology", R.-H. Lowie wrote: "there is a social principle deeply rooted among many peoples, and that is that of reciprocity. No individual, with the exception of his relatives, expects to receive free gifts or freely given services".

For their part, the administrations must also have read Lowie, because the more distant the family link between the giver and the receiver, the less they will admit significant gifts.

Thirdly, now that we have understood that a gift is made to a person with whom one has an established relationship, and at an event where it is common practice to offer something, how much of a gift can one reasonably give without falling into the category of a gift?

What is the giver's fortune?

The administrations and judges have an ultimately homogeneous approach. The size of the gift must be assessed according to the donor's wealth. In other words, the richer you are, the more beautiful gifts you can give to your loved ones. Once this has been said, the next question inevitably arises: is there a percentage, a ratio between the value of the gift and the wealth of the giver?

We estimate that the amount of the gift should not exceed 1% of the giver's capital in Belgium and 2.50% in France in order to be considered a gift.

Unfortunately, none of these figures are officially recognised by the authorities or by the magistrates. 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.

Some examples from various jurisdictions

In France, it was held that the sum of 100,000 FF (just over €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 15.5 million francs (about €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 fortune, which amounted to slightly more than 8 million francs (about 1.2 million euros).

In conclusion

Above all, do not deprive yourself of the shared pleasure of giving gifts to the ones you cherish! And let your wit guide you as to the importance of the gift in relation to the event it accompanies.

Now, if you are planning to make a substantial gift - be it an object or a sum of money - keep the following points in mind:

Make the gift on the occasion of a specific event: the aim is to highlight a temporal tie and a causative link between the event and the gift;
In the case of a cash gift, use a transfer and indicate the event in question in the reason for the transfer (for example: happy birthday, merry Christmas, congratulations on passing your exams, etc.), obviously without ever using the words "gift" or "donation", or the verb "to give". When you give a gift, you don't give, you offer;
The gift must not deplate the giver. A gift is not a tool for transmitting wealth, otherwise it is a donation.

And above all, if in doubt, do not hesitate to contact your usual advisers - your notary or your lawyer - to examine the situation precisely to ensure that the gift does not become a poisoned gift.

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