Donation from parents to children: tax exemption, limits, and supreme court updates

Donations between parents and children are a common way to transfer assets and liquidity within the family, often with the purpose of providing financial support or anticipating inheritance. Recently, the Italian Supreme Court clarified certain relevant tax aspects with ruling no. 7442/2024, redefining the exemption regime and applicable limits for indirect and informal donations.

In this article, we will analyze in detail:

• what is meant by donation and its various forms;
• the latest updates introduced by the Supreme Court;
• the tax exemption limits;
• the correct procedures to avoid issues with the tax authorities.

• What is a donation and how does it work?
• Direct, indirect, and informal donations: definitions and differences
• Tax developments from Supreme Court Ruling No. 7442/2024
• When is the gift tax due?
• Real estate donation: benefits and risks
• Bank transfers to children: what description to use?
• Declaration of informal donations
• Is a notary needed to donate money?

What is a donation and how does it work?

A donation is an act by which a person (donor) transfers to another (donee) an asset or a right free of charge and irrevocably (Art. 769 Italian Civil Code). It is a commonly used tool within families, for example, to:

• transfer real estate;
• donate sums of money;
• pay expenses on behalf of children.

For a donation involving real estate or real property rights to be valid, a notarial public deed is generally required (Art. 782 Italian Civil Code). However, there are also less formal types of donations, such as indirect donations (e.g., directly paying a child’s expense) and informal donations (such as a bank transfer without a notarial deed).

Direct, indirect, and informal donations: definitions and differences

• Direct donation: formal transfer with notarial deed (e.g., donation of a house with deed of sale).
• Indirect donation: transfer of value without an explicit deed but with a clear expression of gratuitous intent (e.g., a parent directly pays the child’s mortgage).
• Informal donation: transfer of money or assets without formal documentation, such as a bank transfer with a liberal purpose stated in the payment description.

Tax developments from Supreme Court Ruling No. 7442/2024

The Italian Supreme Court, Tax Division, with ruling no. 7442 of March 20, 2024, established that:

• indirect and informal donations between parents and children are exempt from gift tax if:
  • they are not formalized with deeds subject to registration;
  • the total value does not exceed €1 million (raised to €1.5 million in the case of children with severe disabilities, pursuant to 2, para. 49, of Legislative Decree of October 31, 1990, no. 346);
  • there is a clear liberal intent, which may also be demonstrated through explicit descriptions in bank transfers.

This interpretation allows for greater flexibility and facilitates the transfer of family assets without excessive tax burdens.

When is the gift tax due?

The gift tax is applied at a rate of 4% with a €1 million exemption threshold, subject to increases for individuals with disabilities (Art. 2, para. 49, Legislative Decree 346/1990). The tax is applied:

• if the value of the donation exceeds the exemption threshold;
• if the donation is formalized through a public deed or a registered private agreement.

Practical example: a bank transfer of €50,000 from a parent to a child with the note “family gift” is not subject to tax, as long as it does not exceed the stated limits. However, the donation of a property via notarial deed may be subject to gift tax unless its value falls within the exemption threshold.

Real estate donation: benefits and risks

Donating a house allows for immediate transfer of ownership, potentially avoiding future inheritance disputes. However:

• it is an irrevocable act, except in cases provided by law (e.g., manifest injustice or serious grounds);
• it may create issues with other heirs if it infringes upon their legal inheritance rights;
• in case of resale, the property may be subject to testamentary or judicial revocation.

For these reasons, it is always advisable to assess the convenience of donation versus sale, and to consult a notary or lawyer specialized in inheritance law.

Bank transfers to children: what description to use?

To avoid tax disputes or future legal challenges, it is good practice to indicate a clear description in the bank transfer that expresses the gratuitous intent, such as:

• “Family gift”;
• “Donation for first home purchase”;
• “Financial support to child”.

There is no mandatory formula, but transparency is essential to prove the absence of any obligation of repayment.

Declaration of informal donations

Informal donations that comply with legal limits and are not formalized do not need to be declared to the Agenzia delle Entrate and are not subject to tax.

Is a notary needed to donate money?

No, a notarial deed is not mandatory for the donation of money, but it is important to keep evidence of the transfer and its purpose, in case of future verification.

The Supreme Court ruling no. 7442/2024 has made the transfer of assets and money between parents and children easier and less costly, thanks to the extension of the tax exemption to indirect and informal donations within certain limits.

However, every family and financial situation is unique and requires careful evaluation. It is therefore recommended to rely on professionals with expertise in inheritance and tax law to properly plan the asset transfer, avoiding the risk of penalties or disputes.

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