The pitfalls of tax-free parental benefits – See examples

By Chrysostomos Tsoufis

The tax-free limit of €800,000 is provided only once effective from 1 October 2021 for parental benefits and donations to first-degree relatives (i.e. children, spouse, parents and grandchildren). For each subsequent parental benefit, the tax-free amount that was taken into account in each previous one will be deducted. The benefits before 1/10/2021 are not included.

For example:

A transfers with parental benefit to his child B in 2016 corporate shares of an OE. worth €50,000, on 30-8-2021 a property with an objective value of €230,000 and on 2-10-2021 he transfers an amount of €600,000 from his personal account to his child’s bank account. No tax will be imposed on the donation of the amount of money, since the parental benefits and donations of A to B that have been made before 1-10-2021 are not taken into account.

If in the same example A transfers to B by donation on 3-1-2022 a plot of land worth €250,000, then for the calculation of the donation tax only the donation of the amount of €600,000 (250,000+600,000=850,000) will be included and tax will arise on the amount that exceeds the tax-free amount of €800,000 (850,000- 800,000=50,000) i.e. 50,000 x 10% = €5,000.

These are defined by a circular of the head of AADE Giorgos Pitsilis which comes to unravel important issues for an arrangement that has already been in place for more than a year.

The circular clarifies that for monetary donations the tax-free amount of €800,000 applies only if these are made via bank transfer. A transfer from an account in which the donee is a joint beneficiary to his individual account is also considered a transfer through financial institutions. If banks do not intervene, the amounts are taxed at an independent tax rate of 10%.

In this context the authorities will delete the 10% tax which was imposed in the cases of parental benefits and donations which were made between 1/10/2021 to 9/9/2022 by withdrawing money from a bank account and depositing the money into the recipient’s bank account within 3 working days. It goes without saying that if more than 3 business days have passed between the withdrawal and the deposit the tax imposed will remain.

The same circular reveals that all consecutive donations will be checked one by one. In order to close the existing loopholes they will pass a check that one child has donated money to his parent and the parent then gave the money to his other child with a parental allowance. In essence, these are cases where there was a transfer of money from one brother to the other through the intermediary of the parent. The critical factor here is duration between donations. If it exceeds 6 months then it is not considered that an attempt was made to circumvent the rules. If it does not exceed 6 months, then according to the circular there is a strong indication of an attempted circumvention. In these cases, not only does the tax-free limit of €800,000 not apply, but a tax of 20% is imposed from the first euro.

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