Donations of real estate between close relatives are not subject to income tax, even if it is commercial real estate used by citizens in business activities. This decision was made by the Supreme Court (SC) of the Russian Federation, putting an end to this issue. Previously, the approaches of courts and departments to such transactions were contradictory, which created risks of imposing a real estate gift tax. Now this threat should be removed for most situations, lawyers say.
The Supreme Court of the Russian Federation considered the case based on the claim of individual entrepreneur Elena Khabieva, who challenged the tax inspectorate’s decision to prosecute her for committing a tax offense. It was about non-payment of income tax (NDFL) on real estate received as a gift by the entrepreneur. In July 2019, Svetlana Posyagina gave her daughter Elena Khabieva 11 commercial real estate properties in the Perm region. Both citizens then had the status of individual entrepreneurs and used the premises in their business activities, including renting them out. The donation transaction attracted the attention of the tax inspectorate, which, following an audit in June 2023, accrued an additional 2.43 million rubles to Ms. Khabieva. Personal income tax and 30.4 thousand rubles. fine Despite the close relationship of the parties to the transaction, the fiscal authority considered that the donated commercial real estate was “entrepreneurial non-operating income subject to taxation.”
According to the Tax Code (TC), gifts from a family member or close relative, which include spouses, parents, children, brothers, sisters, grandparents and grandchildren, are exempt from personal income tax.
Elena Khabieva appealed the inspector’s decision to a higher tax authority, and after the refusal went to court. The litigation lasted more than two years, but in the end the arbitration courts ruled in favor of the tax authorities. According to the courts, personal income tax is collected if the donated real estate is used for business purposes, and both parties to the transaction were individual entrepreneurs.
All in the family
However, following the taxpayer’s complaint, the case was transferred to the Economic Collegium of the Supreme Court, which made a different decision, creating a precedent for all similar disputes. From the ruling of the Supreme Court published on April 21, it follows that “the possibility of exempting income from personal income tax is associated exclusively with the presence of family or closely related relationships between the donor and the donee” and does not depend on the type of use of the property received as a gift, its functional characteristics and whether the parties to the transaction have individual entrepreneur status.
The legislator’s logic here is that such a donation does not entail property growth and economic benefit for the donee, since although real estate “changes its owner, it remains within the circle of persons closely related,” the panel explained.
Additionally, the Supreme Court pointed out the need to “maintain trust in the law and the actions of the state.” Thus, the plaintiff referred to letters from the Ministry of Finance, which stated that donations of commercial real estate between close relatives are not subject to personal income tax. These clarifications created the taxpayer’s expectation that his behavior would be regarded as lawful, and he relied on them in good faith, the economic board indicated. The decision of the inspectorate to charge personal income tax and a fine was declared illegal by the Supreme Court.
Kommersant sent a request to the Federal Tax Service of the Russian Federation.
Donation sale discord
In practice, there were quite significant risks of additional taxes in the case of donating commercial real estate to close relatives, says Nikolai Titov, managing partner of atLegal. “Tax authorities and courts often assumed that if property is used in business activities, then it actually generates economic benefits and should be considered as income subject to personal income tax,” the lawyer clarifies.
9.7 trillion rubles
Personal income tax was received by the consolidated budget of the Russian Federation in 2025.
However, there was no uniform approach in judicial practice. Even the positions of the relevant departments—the Ministry of Finance and the Federal Tax Service—differed, points out the general director of the legal company Mitra, Yuri Mirzoev. Thus, if the Ministry of Finance consistently spoke out against the imposition of income tax on such transactions, then the letter of the Federal Tax Service No. BS-4-11/9359@ dated July 24, 2023 directly indicated the need to use property only for personal purposes in order to apply the benefit, which created the basis for additional charges, Mr. Titov clarifies.
Managing partner of Zalesov, Timofeev, Gusev and Partners, Evgeniy Timofeev, believes that the arbitration courts here applied the same approach to donations as for benefits in the sale of real estate, which do not apply to property used in business activities. “However, selling and receiving as a gift are completely different things, and the donation benefit is in no way related to the use of property,” explains Mr. Timofeev.
Now experts hope for unification of practice.
In fact, the Supreme Court recognized that for exemption from personal income tax, neither the method of using the donated object, nor its functional purpose, nor the status of the parties to the transaction, as in inheritance, matters, summarizes Olga Sedova, senior lawyer at Legal Principles consulting.
This case illustrates a problem that has periodically manifested itself in practice in recent years; it concerns the expansion of restrictions on personal income tax benefits for entrepreneurs, says Taxology partner Alexey Artyukh. But, he emphasizes, a special rule applies to income from donations, clause 18.1 of Art. 217 of the Tax Code of the Russian Federation, which does not provide exceptions for entrepreneurs, so that even donations of commercial real estate between close relatives are subject to unconditional tax exemption.
Family and other circumstances
“The position of the Supreme Court is fundamentally important and absolutely correct; it not only resolves a specific dispute, but restores justice,” emphasizing the inapplicability of the “entrepreneurial” approach to transactions within the family, Mr. Mirzoev points out. Partner in the tax practice of the law firm “Kosenkov and Suvorov” Anna Zelenskaya believes that the conclusions of the Supreme Court should protect taxpayers conducting business activities from arbitrary interpretation of the law: “Otherwise it would mean that an individual legally conducting business with paying taxes and registering an individual entrepreneur would be deprived of his rights and would act as a taxpayer in conditions of legal uncertainty.” Nikolai Titov predicts that the decision of the Supreme Court will “reduce the risks of additional charges, especially in typical family asset ownership structures.”
In addition, Mr. Artyukh considers important the Supreme Court’s reference to the “principle of protecting the legitimate expectations of taxpayers,” who have the right to rely on the explanations of the Ministry of Finance. Mr. Titov agrees with him: “If the state broadcasts a certain interpretation of a norm, it should not punish for following it. For business, this is a signal that compliance through official clarifications is finally starting to work as a real protective mechanism, and not a formality.” Evgeniy Timofeev hopes that the Supreme Court’s order to take into account the position of the Ministry of Finance will be perceived by the courts as an opportunity to accept the interpretation proposed by the ministry, but not as an obligation to follow it.
Meanwhile, Olga Sedova does not rule out that the tax authorities may continue attempts to assess additional personal income tax, citing other circumstances. For example, when the artificiality of transactions or a tax benefit is perceived, Mr. Titov adds. In addition, Yuri Mirzoev notes, it is unclear whether the position of the Supreme Court is applicable to recipient individual entrepreneurs who are on a simplified taxation system, and whether VAT is charged on such gratuitous sale of property between relatives-entrepreneurs. In his opinion, it would be best to clarify these points at the legal level.
