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How much money are you allowed to give your children and grandchildren? With the festive season fast approaching, parents and grandparents traditionally pop a little something in their loved ones’ Christmas cards.

Although these cash gifts tend to be quite small, in some cases they can be rather more generous. Should these small gestures be viewed simply as one-off gifts, or should we actually treat them as donations?

Gift or donation? This question is not as trivial as it may seem. Unlike one-off gifts, donations are governed by a series of rules under civil and tax law and are subject to tax.

How to tell the difference between a donation and a gift

It basically depends on the financial circumstances of the donor and the beneficiary. It is generally accepted that as long as the amount is small (in view of the donor’s financial circumstances), it is simply a present or a customary gift. In fact, if no useful clarifications are made in this regard in different countries’ applicable legislation, in practice, the question of whether a gift is deemed large or small will depend on purely factual information, such as the donor’s assets, the relational link between the donor and beneficiary and even the event that caused the money to change hands. In Belgium, for example, a maximum rate of 1% of the donor’s wealth per year (to one or more beneficiaries) has often been applied, but this limit is not confirmed by any legal document.

The amounts (relative to wealth) must not be enough to result in the impoverishment of the giver; this is one of the ways of distinguishing between a customary gift and a donation in the true sense of the word.

As regards the circumstances in which money is changing hands, we use the term “customary gift” when the gift marks a particular occasion, such as Christmas, a birthday or graduation.

How to make a gift

You can give a small cash sum as a Christmas or birthday gift by simply putting some money in an envelope. Bank transfers are also permitted. In this case, writing a message such as “Merry Christmas”, “Happy New Year” or “Happy Birthday” in the transfer communication field is a good idea to make clear that it is a gift rather than a donation. In addition, unlike with a donation, the beneficiary is not required to formally accept a gift.

What are the civil implications of a customary gift?

A customary gift is final, i.e. it is not possible to go back on your decision.

In contrast, a donor is able to revoke their donation if it is met with ingratitude, for example. In addition, the amounts can be taken into account in the event of a division or inheritance.

What are the tax implications of a gift?

Unlike in the case of a donation, a one-off gift is not likely to result in gift tax or inheritance tax being levied. With regard to income tax, a customary gift is not considered taxable income (for the recipient) and cannot, therefore, be viewed as a deductible expense (for the giver). Of course, this only applies when a gift is given to celebrate Christmas, a birthday, a marriage or a birth, for example.

Stefania Bidoli
Tax and Estate Planner
Anne-Lise Grandjean
Tax and Estate Planner
Bernard Goffaux
Responsable Estate Planning
Christophe Delanghe
Senior Estate Planner

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