Gifting a flat to a relative: formalities and taxes: what to do under Georgian law

What to do

1. Formalities: the form is a written transaction and registration (a notarial form is not required by the Civil Code) (Civil Code of Georgia, Art. 183); a gift of real estate is concluded from the moment the donee's right is registered in the Public Registry (Civil Code of Georgia, Art. 525) — until registration the donor remains the owner.
2. Who must consent: a flat bought during marriage is joint property of the spouses, and disposing of it requires the spouses' consent (Civil Code of Georgia, Art. 1160); however, the registry may not require the consent of a co-owner who is not recorded in the registry (Civil Code of Georgia, Art. 312). Share: a co-owner may gift his or her own share alone, but the whole thing only jointly (Civil Code of Georgia, Art. 959). For a donee who is married: a gift received during marriage is the donee's personal property, not joint property with his or her spouse (Civil Code of Georgia, Art. 1161).
3. Tax (the degree of kinship decides everything): a gift from a relative of the first or second order is not subject to income tax (Tax Code of Georgia, Art. 82); first order: spouse, children, adopted children, grandchildren and great-grandchildren, parents (Tax Code of Georgia, Art. 82); second order: siblings, nephews and nieces and their children (Tax Code of Georgia, Art. 82); for third and fourth order relatives, GEL 150,000 per tax year is exempt (Tax Code of Georgia, Art. 82); third order: grandparents; fourth order: uncles and aunts; cousins and friends are not on the list (Tax Code of Georgia, Art. 82); gifts of up to GEL 1,000 a year from anyone are not taxed (Tax Code of Georgia, Art. 82); otherwise the individual's income is taxed at 20% (Tax Code of Georgia, Art. 81). Later, on sale: if the donee, a first-order relative, subsequently sells the property, the donor's period of ownership counts towards the two-year period for the tax exemption (Tax Code of Georgia, Art. 82).
4. Protection for the donor: a gift is irrevocable, except in two cases: a gift may be revoked for gross insult or gross ingratitude towards the donor or his or her close relatives (Civil Code of Georgia, Art. 529); revocation must be filed within 1 year from when the donor learned of the act (Civil Code of Georgia, Art. 529); a donor who falls into need may reclaim the gift if it still exists (Civil Code of Georgia, Art. 530). Prohibition: a gift may not be made if it deprives the donor or his or her dependants of the means of subsistence (Civil Code of Georgia, Art. 526). To keep living in the flat, the donor may reserve a usufruct — the right to use the dwelling as an owner, without the right of alienation (Civil Code of Georgia, Art. 242) — and register it together with the gift.
5. Where to apply: Public Registry / Public Service Hall — signing and registration; notary — optional; Revenue Service — declaration, if the gift is taxable.
6. Evidence: extract from the registry, identity documents, documents confirming kinship, spouse's consent.
7. Pitfalls: assuming 'a gift to a son is taxed' or 'a gift to a friend is tax-free'; a gift without a usufruct — the donor loses the right to live in the flat; the expectation of revoking the gift at any time; a jointly owned flat of spouses gifted without the second spouse's consent.

Be sure to check

• form (written contract) and the moment of transfer — registration in the Public Registry; a notary is not mandatory
• spouse's consent where property is jointly owned; the share in the flat
• income tax by degree of kinship (first and second order — exempt; third and fourth — up to the limit; others — the standard rate)
• revocation of a gift (ingratitude and time limit, the donor's need) and usufruct to preserve the right to live there