Money. Disguised donation: be careful, the tax authorities are watching

Although it may benefit from a tax reduction depending on the degree of relationship between the donor and the donee (€100,000 every 15 years between a parent and a child, for example), the donation is nevertheless taxed.

This is an act granted free of charge, that is to say without consideration. This is not the case with a sale, for example, which is an onerous act, the taxation of which is lower.

A tax motivation

In order to pay less transfer tax, it may therefore be tempting to pass off a donation as a deed of sale.

From then on, we speak of a disguised donation: the act has the appearance of a sale, but the donee offers no consideration.

A typical example is the transfer of real estate from a parent to a child. A deed of sale is drawn up, but the child does not pay for the property or pays significantly less than its value.

Although the origin of a disguised donation is often fiscal, it can also be used to favor one heir at the expense of others.

Therefore, it can be contested not only by the tax authorities, but also by other heirs.

Risks and consequences

The reclassification of an onerous act as a disguised donation by the tax authorities depends on the latter's ability to prove the intention to sell without consideration.

If this is the case, it will apply gift tax with late payment interest and, possibly, a penalty (up to 80% in the event of proven fraud).

However, the donation is not necessarily invalidated, as long as the document that supports it is recognized as valid. In other words, a disguised donation can be validated as an ordinary donation.

But another risk remains in the case where the disguised donation has broken the equality of the heirs at the time of the succession or, worse, jeopardized the hereditary reserve of the heirs.

If the dispute takes place before a civil court, the judge may force the beneficiary to reinstate all or part of the donation into the estate or go so far as to purely and simply revoke this donation.