Parent-Child Gifts in Madrid: Form 651, Public Deed and Donor's Income Tax

When it is a gift and when it is a family loan

Before discussing Form 651 it helps to clarify the difference. A gift is a gratuitous transfer: what is given will not be returned. A family loan, even with no interest, must be formalised with an agreed repayment plan and reflects a real debt of the borrower. Families often confuse the two: if the money is not repaid, the Spanish Tax Agency will treat it as a gift and demand the corresponding tax, plus possible penalties for not declaring it.

If the goal is to help with liquidity without transferring wealth, the loan should be put in writing with a repayment schedule and, optionally, filing of Form 600 as an exempt operation. If the goal is to transfer wealth permanently, the right path is the gift.

99% allowance on parent-child gifts in Madrid

The Madrid region maintains a 99% allowance on the Spanish Gift Tax liability for kinship Groups I and II, which include gifts between parents and children (in either direction), between spouses and between grandparents and grandchildren.

In practice, this means that a €100,000 gift between parent and child in Madrid generates a nominal liability that is reduced to 1% thanks to the allowance. Note that the allowance applies to the tax due, not to the taxable base, and requires meeting the formal conditions discussed below.

Formalisation: when a public deed is required

The general rule in the Madrid region is that gifts seeking to apply the regional allowance must be formalised in a public document (deed before a notary), particularly for cash and real estate. There is, however, a practical exception: gifts of small amounts, generally below €10,000, may be formalised in a private document without losing the allowance. The specific case should be reviewed before deciding on the format.

In practice we see many families wanting to gift €5,000 or €8,000 and signing a simple private document, which is perfectly valid. When the amount rises (deposit on a home, anticipated inheritance), a public deed becomes the standard option.

For gifts of real estate, beyond the tax issue, a public deed is required by Spanish civil law itself: the gift of immovable property must be granted in a public deed to be valid.

How to file Form 651

Form 651 is the self-assessment of Spanish Gift Tax. In the Madrid region it is filed before the regional tax authority, normally electronically:

1. Identify the type of gift (cash, real estate, shares, vehicle).
2. Calculate the real value of what is being gifted at the accrual date.
3. Apply the regional reductions and allowances that fit your case.
4. Complete Form 651 with the donor's, donee's and operation's details.
5. Attach the documentation: copy of the deed or private document, bank evidence of the transfer, valuations if real estate is involved.
6. Submit and pay (if the resulting tax due is positive) within the established deadline.

Filing deadline: 30 working days

The deadline to file Form 651 is 30 working days from the day after the date of the gift (the date stated on the deed or private document). It is markedly shorter than the Inheritance Tax deadline.

If missed, the progressive surcharges of Law 11/2021 apply. In gifts it is particularly easy to miss the deadline because families assume "it's between parents and children, no rush". Mark the date as soon as the operation is signed.

The donor's IRPF trap

This is one of the points that creates the most surprises and that many taxpayers discover too late. When real estate is gifted (does not apply to cash gifts), the donor may have to declare a capital gain in their personal income tax (IRPF) for the difference between the property's acquisition value and its value at the time of the gift.

That is: the child pays (1% after the allowance) the Gift Tax, but the parent may have to pay tax on a capital gain that in some cases far exceeds the regional saving. Real estate gifts can paradoxically be more expensive than a well-structured sale at a symbolic price, depending on the situation. This gain is taxed in the savings base of IRPF, with progressive rates from 19% to 28% depending on the amount.

An important exception: capital losses generated by gifts are not computed for IRPF purposes. That is, if the property has lost value, the donor cannot use that loss to offset other gains. Capital gains, on the other hand, do count.

In practice we see many families plan the gift only from the donee's side and discover the donor's IRPF bill months later when filing their return. It is one of the most frequent enquiries we receive on this kind of operation. Before signing, the full tax cost should be calculated: Gift Tax (donee) + IRPF (donor, if applicable) + municipal capital gains tax (donor, if urban property) + notary and registry costs.

Property gift: added municipal capital gains tax

If the gift is an urban property, beyond Gift Tax (donee) and possible IRPF (donor), a third tax appears: the plusvalía municipal (Spanish municipal capital gains tax) of the city council where the property is located. In gifts, the taxpayer for this local tax is the donor (unlike inheritances, where it is the heir).

The deadline is 30 working days from the gift. We covered this tax in detail in our guide on Spanish municipal plusvalía tax in inheritances, where we explain the calculation methods and the option to choose the lower one.

Special cases: non-resident donor or donee

When one of the parties lives outside Spain, two things should be carefully reviewed:

• Applicable regulations: after the European case-law evolution, non-residents may apply the regional regulations that correspond. For cash gifts, that is the donee's region; for real estate gifts, the region where the property is located. So a child living in the United Kingdom receiving a cash gift from a parent resident in Madrid may apply the Madrid rules, not the state ones.
• Double taxation: Spain has few bilateral treaties on gifts (unlike inheritances). It needs to be reviewed case by case whether the donee's country also taxes the gift received and, if so, what deduction applies. Spanish law itself provides a unilateral deduction for tax paid abroad, with limits.
• Non-resident donor gifting real estate in Spain: taxed under NRIT for the potential capital gain, not under IRPF. The difference matters because it changes the form and the deadlines.

If the donee does not have a NIE, it must be obtained before filing anything. We frequently see gifts to children studying or working abroad where the lack of NIE blocks the registration of the operation. The NIE can be requested from abroad through the Spanish consulate or via a power of attorney to a representative in Spain. For the parallel case of inheritances with non-resident beneficiaries, our guide on inheritance with a non-resident heir covers the choice of regional regulations and bilateral treaties in detail.

Common mistakes in family gifts

1. Gifting a property without first calculating the donor's IRPF.
2. Skipping the public deed because "it's family" when the amount actually requires it to apply the allowance.
3. Failing to file Form 651 within 30 working days.
4. Forgetting the municipal capital gains tax on a gift of urban property.
5. Confusing gift with loan: not repaying the money ends up being a disguised gift, with penalties.
6. Gifting to a child and their spouse without thinking it through: each donee files their own Form 651 and the tax effect may differ from what was expected.

How GESTISYD can help

• We analyse the full tax cost (Gift Tax + donor's IRPF + municipal capital gains tax if applicable) before deciding the format.
• We prepare and file Form 651 within deadline, applying the Madrid regional allowance.
• We coordinate with the notary when a public deed is needed.
• We work in Spanish and English, with experience in cross-border gifts.