Lifetime donations in Catalonia

There are different donations that can be classified according to the assets:

• Real estate such as houses, premises and land. Donations of real estate according to the law must be made in a donation deed before a Notary. That is, to make a donation of real estate, the legislation requires the formalisation of the public deed of donation where the individual description of the donated asset must appear, the charges that the donee must satisfy (if any) and the acceptance by the donee of said donation during the donor's lifetime. Currently, the donation of real estate with reservation of the right of usufruct in favour of the donor is also very common. In this case, the donor transfers ownership but can enjoy it or its income until death, the donee receiving the bare ownership during the donor's lifetime and full ownership after their death.
• Movable assets such as vehicles, jewellery and money for a house, business or shares in entities which can also be formalised in writing in a public deed, and although it is not mandatory as in the donation of real estate, it is advisable to have the deed before a Notary if the economic value of the donated asset is high. Furthermore, it is common for the tax regulations of the Autonomous Communities to require that the donation be in a deed in order to enjoy the tax benefits that usually exist for some types of donation.

The Civil Code in article 634 limits lifetime donations to those that exceed what could be given or received by will. Furthermore, the donor must always reserve in full ownership or usufruct what is necessary to maintain a standard of living appropriate to their circumstances.

By law, it is determined that people who wish to make a donation must meet certain requirements. Firstly, the requirement is related to the donor having sufficient legal capacity, which is 18 years of age according to the Spanish legal system. Likewise, a donation may be made by someone who has the capacity and power to dispose of the asset to be donated. Therefore, to make a donation, one must be of legal age and have full mental faculties.

The law establishes that the donee, that is, the person who receives the donation, must have natural capacity, meaning that they understand the legal terms of the act to be performed and its consequences. Therefore, being of legal age is not necessary to receive a donation.

However, there is an exception: if the donation is conditional or onerous, natural capacity will not suffice; instead, the capacity to contract will be necessary, and if this is lacking, the intervention of legal representatives will be required.

Debts incurred before making the donation can be claimed by the creditors from the donor and if the donor is unable to satisfy them, the donor's creditors with credits prior to the donation could go against the donated asset.

In these cases, it is very common to encounter a onerous donation, in which the donee takes on the responsibility of paying the debts corresponding to the donor.

It is necessary for donations to be accepted by the donee for the legal act to take place. Once accepted, the situation cannot be revoked except in certain exceptions. These are:

• Survival of the donors' children, if they had children previously or if these were believed to be dead.
• Non-compliance with charges imposed by donors on donees.
• Ingratitude of donees: in the event that a donee acts ungratefully or harmfully towards the donor, the latter has the right to revoke the donation. These acts may include: damage to their reputation, breach of the terms of the donation, abuse or mistreatment towards the donor, negligence or mismanagement of the donated goods.
• Poverty of the donors: if the donor is in a situation of poverty or financial need, it is permitted to reverse the donation.

From the moment the cause that motivates the revocation occurs, the law grants one year to request the revocation of the donation through judicial means. Any advance waiver of the revocation is considered null and void.

The donor must pay the Personal Income Tax (IRPF). Donations may be subject to taxation since the donor acquired an asset at one value and gives it away at another, often higher value, resulting in a gain. This tax does not apply to money donations because there is no change in nominal value.

The donee must pay the Inheritance and Donations Tax (ISD). It is a state tax regulated by Law 29/1987 of 18 December, on Inheritance and Donations Tax. It is managed by the different Autonomous Communities, which can set reductions that create differences between territories. The deadline to pay it is 30 working days, but it depends on the Autonomous Communities. In the Catalan case, it is one month counted from the day the contract takes place.

Furthermore, if the donated asset is an urban property (house, land, garage, commercial premises…), the municipal capital gains tax must be paid, that is, the Tax on the Increase in Value of Urban Land (IIVBNU). There is a period of 30 working days from the granting of the donation to pay the municipal capital gains tax. This tax does not apply to rural land.

This is surely the most used tax benefit for donations in Catalonia. Thus, a 95% reduction of the value of the property can be applied, with a maximum reduction of 60,000 euros, a limit that is set at 120,000 euros for donees who have a degree of disability equal to or greater than 65%.

The donation must be made by notarial deed, the donee must be under 36 years old or have a disability equal to or greater than 65%, and the sum of the general and savings tax bases of the last personal income tax return filed by the donee cannot exceed, after deducting personal and family allowances, 36,000 euros.

Furthermore, in the case of money donations, the donee must acquire the property within three months from the date of the donation.

In donations in favour of the spouse, descendants, ascendants or collaterals up to the third degree of the donor, whether by blood or adoption or by affinity, a reduction of 95% of the net value of all the assets related to a business or professional activity of the donor may be applied to the taxable base.

This tax benefit can also be enjoyed by donees without a family relationship who have been employees for at least 10 years and have had management or leadership roles in the company for five years.

In all cases, the donor must cease their professional activity.

In donations in favour of the spouse, descendants, ascendants or collaterals up to the third degree of the donor, whether by blood or adoption or by affinity, a 95% reduction of the value of the shares in entities, listed or unlisted on organised markets, may be applied to the taxable base, proportionally to the ratio between the assets necessary for the exercise of the business or professional activity, less the amount of the debts arising from it, and the net equity value of each entity.

The requirements to benefit from this tax relief are specified in articles 42 and 43 of the Catalonia Law 19/2020, of 7 June, regulating the inheritance and donations tax.

This reduction and its requirements are regulated in articles 44 and following of the Catalonia Law 19/2020, of 7 June, regulating the tax on inheritances and donations.

As a concept, we can state that in donations in favour of persons who, without having the family relationship, acquire shares in entities, whether listed or unlisted on organised markets, a reduction of 95% of the value of the acquired shares may be applied to the taxable base, proportionally to the ratio between the assets necessary for the exercise of the business or professional activity, less the amount of the debts arising from it, and the net equity value of each entity.

This reduction is regulated in articles 47 and following of the Catalonia Law 19/2020, of 7 June, regulating the inheritance and gift tax, where the requirements to benefit from this relief are also established.

Transcribing the law, we can point out that in donations in favour of persons who, without having the family relationship, acquire shares in entities, whether listed or unlisted on organised markets, a reduction of 95% of the value of the acquired shares may be applied to the taxable base, proportionally to the ratio existing between the assets necessary for the exercise of the business or professional activity, less the amount of the debts arising from it, and the net equity value of each entity.

This tax benefit is regulated in articles 50 and following of the Catalan Law on Inheritance and Gift Tax.

Setting aside the requirements, as a concept we can point out what article 50 of this law states: in donations in favour of the spouse or descendants, a 95% reduction may be applied to the taxable base on the value of cultural goods of national interest and catalogued movable goods that have been qualified and registered in accordance with the Law 9/1993, of 30 September, of the Catalan cultural heritage, a 95% reduction on the value of goods forming part of the historical or cultural heritage of other autonomous communities that have been qualified and registered in accordance with the corresponding specific regulations, and a 95% reduction on the value of the goods referred to in paragraphs 1 and 3 of the article 4 of the State Law 19/1991, of 6 June, on the wealth tax.