In recent months, a real boom in donation contracts has been observed among Ukrainians. People transfer real estate, vehicles and other property to their relatives or acquaintances en masse. This trend is not accidental – the main impetus for this was changes in the mobilization legislation. In a situation of legal uncertainty and increased citizen registration measures, many see a donation contract as a way to protect their property or avoid potential risks.
But is darcha really a legal instrument that can influence mobilization processes? Are there legal pitfalls that could cause problems in the future? IA “FAKT” asked the lawyers of the “Repeshko and Partners” bar association to explain how this mechanism works, whether it can be considered an effective method of protection, and what the possible consequences are for the parties to the contract.
Indeed, recently there has been a real boom in donation contracts. In this regard, we would like to inform you that the law of Ukraine dated May 9, 2024 amended the Code of Ukraine on Administrative Offenses (CUP) in terms of increasing liability for violations of military accounting rules and legislation on defense, mobilization training and mobilization.
Currently according to the article. 210 of the Code – violation by conscripts, conscripts, reservists of the rules of military accounting in a special period, the amount of the fine is from UAH 17,000 to UAH 25,500. At the same time, Article 2101 The Code of Violations of the Legislation on Defense, Mobilization Training and Mobilization in a Special Period specifies that the amount of the fine also ranges from UAH 17,000 to UAH 25,500. At the same time, according to Art. 307 of the Code on Administrative Offenses, the fine must be paid by the violator no later than fifteen days from the date of delivery of the decision on the imposition of the fine. In the event of an appeal against such a resolution, no later than fifteen days from the moment of notification of the appeal being dismissed.
In the event that the offender fails to pay the fine within the specified period, the decision on the imposition of the fine is sent for enforcement to the state executive service body at the offender’s place of residence, work or at the location of his property in accordance with the procedure established by law (Article 308 of the Code of Administrative Offenses).
We would like to remind you that in order to enforce the resolution on the collection of a fine for the commission of an administrative offense, the offender shall be charged:
- double the amount of the fine specified in the relevant article of the Code of Administrative Offenses and specified in the resolution on the collection of the fine (that is, in the case of the imposition of a fine of 20,000 UAH by the TCC and the JV and its timely non-payment, at the stage of the enforcement proceedings, the specified amount will already be 40,000 UAH);
- costs of executive proceedings.
It should be noted that a separate decision on the imposition of a fine is issued for each administrative offense. That is, if the conscript intends to continue to evade the necessary actions, or if he has gone to live abroad illegally forever, then there may be more than one or more such fines.
In such situations, re-registration of a gift contract for a spouse or other close relative of real estate or a vehicle is an option to preserve the property from confiscation in enforcement proceedings. The fact is that the following risks are removed precisely with the donation contract:
- the property received as a gift is not the joint joint property of the spouses, and therefore in no case can it be levied for the husband’s debts, unlike the property acquired under the contract of sale (the husband, in order to save the purchased apartment from TCC and joint venture fines, draws up a contract to donate such an apartment to his wife);
- property received as a gift from a relative of the first or second degree of kinship (it can be a father, mother, husband, wife, brother, sister) is taxed at a zero rate, or simply put, it is not taxed. As a gift of such property is not a close relative or someone else – the income is taxed at the rate of 5% personal income tax and 5% military levy;
- if the property is gifted to one of the spouses, the other spouse has no right to it. The option is valid when, for example, a man who is not married, in order to save the purchased apartment from fines of the TCC and the joint venture, issues it with a gift contract for his sister, who in turn is married. In this case, the apartment is owned exclusively by the sister, and if circumstances change, she has the right to give it back to her brother without her husband’s consent.
But there are always two sides to all processes. It is impossible to say that this option guarantees one hundred percent preservation of property. The wife from the first option can file for divorce, and then the apartment given to her cannot be divided and will remain exclusively her property. The sister from the third option may suddenly die of a heart attack, and then the apartment she received as a gift will be distributed among the relatives of the first degree of kinship: parents, spouse and children in equal parts in inheritance according to law. A will can alleviate this situation, but then, immediately after signing the donation contract, the sister must make a will at the notary.
However, if there are persons who have a mandatory share in the inheritance, they will still have to say goodbye to part of the property. According to Art. 1241 of the Civil Code of Ukraine, minors, minors, adult incapacitated children of the testator, incapacitated widow (widower) and incapacitated parents inherit, regardless of the content of the will, half of the share that would belong to each of them in case of inheritance by law (mandatory share).
The relatively low cost of this service adds to the popularity of the gift contract. Even with a private notary, the final cost of document preparation can be about UAH 10,000, and with a state one it will be even cheaper.
There was a period when, in order to reregister a vehicle, you had to stand in a long line at the service center of the Ministry of Internal Affairs! Men mass-registered cars for their wives. However, this agreement is popular not only among the so-called “evaders”. No matter how popular gifting has become among the military. Going to the ranks of the Armed Forces of Ukraine, men are aware of the risks to their lives, and therefore, just in case, they decide in advance the issue of the distribution of property in the event of their death. This is most relevant for those men who have children from previous marriages, and the second wife does not want the children of the first wife to inherit even a part of the apartment building in which she lives now. After all, according to the law, regardless of the fact that the marriage with the first wife is broken and she does not have the right to inherit from her ex-husband, children from this husband are equal heirs with children from the second or third marriage.
Even a will will not help – because the child is not of legal age or is disabled, he still has the right to the same mandatory share in the inheritance that we talked about earlier. However, when the issue of inheritance is resolved by donation, the man also leaves his parents without it. In this case, we advise you to think carefully about how much you trust your family members, because we will remind you once again that if the wife wants to divorce – the donated property will not be shared and will be considered her personal property.
Another category for which a donation contract is a very relevant option are citizens who have moved abroad, especially to countries that are not close to Ukraine, but have real estate in Ukraine that they plan to sell either in the near future or in the near future. Usually, this is possible either on the condition that you come to the agreement in person, or if it is not possible to come in person – to issue a power of attorney for a person whom you trust both in Ukraine and abroad. But there are many nuances here. While abroad, it is possible to issue a power of attorney in two ways. The first – at a foreign diplomatic institution – a consulate or diplomatic institution, the second – at a local notary.
This service is payable at the consulate, the amount of the consular fee in US dollars and euros, which is paid for the performance of consular actions by foreign diplomatic institutions of Ukraine, is unified and compiled for the certification of powers of attorney for the right to use and dispose of property, except for vehicles, other self-propelled machines and mechanisms,
and carrying out credit operations: children, spouses 30 USD or 28 EUR, other persons – 60 USD or 55 EUR. The cost of the services of a foreign notary will also be quite expensive, plus in some cases it will be necessary to carry out translation and apostillation.
But the main thing is that it is important during the period of martial law. If more than one month has passed since the date of issuance of the power of attorney, which is certified on the territory of Ukraine, the notary must receive a statement from the principal confirming the validity of the power of attorney. If the power of attorney is certified abroad by a consular institution (diplomatic representation) of Ukraine or in accordance with the legislation of a foreign state, the validity of the power of attorney must be confirmed by a statement from the principal, if more than two months have passed since the date of issuance of such power of attorney.
Considering how much time sometimes passes from the date of issuance of the power of attorney to the actual execution of the sales contract, this can be a significant problem, especially considering the need to queue up for an appointment at the Ukrainian consulate and the need to sometimes travel halfway across the foreign country in which you are. In such a case, a donation agreement can really be a good option, but there is the question of other expenses – taxes, as well as if the person intends to sell the real estate issued for him by the donation agreement in the near future.
All the more so that, in order to be safe on their part, buyers who pay a lot of money for purchased real estate want to enter into purchase and sale agreements with the owner of the real estate, and not with a representative by proxy, taking into account the realities of martial law. And they can be understood, because after confirming the power of attorney in distant London today, the owner of the house may die tomorrow, and the signed purchase and sale agreement the day after tomorrow will be recognized as invalid by the heirs.
Regarding taxation of real estate upon sale. The sale of real estate is not subject to personal income tax if the following conditions are met:
- for sale is a residential building, an apartment or part thereof, a room, a garden (cottage) house (including an object of unfinished construction of such objects, a plot of land on which such objects are located, as well as household structures and buildings located on such a plot of land), as well as a plot of land that does not exceed the norms of free transfer, determined Article 121 of the Land Code of Ukraine depending from its purpose;
- the sale of one of the specified objects is carried out no more than once during the reporting tax year;
- the alienated real estate object has been owned by the taxpayer for more than three years.
It is necessary to know that according to p. 172.2. Art. 172 of the Tax Code of Ukraine the income received by the taxpayer from the sale during the reporting (tax) year of the second real estate object is subject to personal income tax at the rate determined Clause 167.2 of Article 167 of the Tax Code of Ukraine, i.e. 5 percent of the received income and one and a half 5 percent of the military levy.
The income received by the taxpayer from the sale during the reporting (tax) year of the third and subsequent real estate objects is subject to taxation at the rate determined Clause 167.1 of Article 167 of the Tax Code of Ukraine, i.e. 18 percent of the tax base, except in cases where the specified property was received by the taxpayer as an inheritance.
Therefore, considering the option of a gift contract instead of a power of attorney, it is necessary to weigh all aspects, taking into account taxation, as well as how much real estate the person to whom the gift will be made has sold or intends to sell, and how quickly the real estate needs to be sold.
Once again, we remind you that when the gift contract is drawn up, the property legally becomes the property of the gifted person, and in the event of his sudden death, it will be distributed among the heirs, depending on the order of inheritance. The first row – children, parents, spouses, the second – brothers, sisters, grandfather, grandmother and so on.
But the main recommendation is to consult a lawyer before you decide to take a decisive step and transfer ownership of the property to another person! A small amount of money spent on a consultation can save millions in property.
