Donation tax reduced by half: the window the megareform would open to transfer assets in life
- Today's problem: why donating is more expensive than inheriting
- The change proposed by the megareform
- Conservative numerical example
- Who should evaluate the transfer now
- What the new law does NOT change
- Frequently asked questions
- ↳ When would the reduction take effect?
- ↳ Does it apply to agricultural and urban properties?
- ↳ Should I wait for the reduction or donate now?
- ↳ What happens if I donate and the law is ultimately not approved?
On July 16, 2026, the Senate approved a measure that could radically transform estate planning in Chile: a temporary fifty percent reduction in the donation tax. This initiative, part of the so called megareform or national reconstruction plan, seeks to encourage the early transfer of assets to generate advanced tax collection that the State estimates at around three hundred million dollars (according to projections by financial analysts and media such as emol.com). However, it is imperative to clarify that this project is not yet current law and is subject to the following constitutional procedures.
Today's problem: why donating is more expensive than inheriting
Currently, law 16.271 on inheritance, assignment, and donation taxes (in force according to the Internal Revenue Service and the Library of the National Congress) severely punishes the transfer of assets during life. If you decide to leave your assets by inheritance to your spouse or children, the law grants them an exempt bracket of fifty annual tax units (UTA). However, if you decide to donate those same assets today, the exempt bracket drops drastically to only five UTA.
This huge tax asymmetry has historically caused families to discard direct donation, choosing to keep properties in their name until death, or risking simulated sales between parents and children, a practice that the SII rigorously inspects and severely sanctions. Over the exempt bracket, the tax is calculated with progressive rates ranging from one to twenty five percent, payable through form 4412.
The change proposed by the megareform
The window that this bill would open lies in its transitional article. By reducing the tax to pay exactly by half for a limited time, life donation would become a mathematically attractive alternative to traditional inheritance or fictitious sales.
| Legal aspect | Current regime (Law 16.271) | Transitional proposal (Megareform) |
|---|---|---|
| Exempt amount for children/spouse | 5 UTA (approx. 4 million pesos) | It would be maintained, but the final tax is reduced. |
| Net tax burden | 100% according to progressive rate table | 50% of the total amount to pay |
| Duration of the benefit | Permanent | Limited time window (validity to be defined) |
Conservative numerical example
To illustrate the difference, suppose a father wants to donate a property appraised by the SII at a tax base equivalent to 100 UTA (approximately 79 million pesos) to his son. In the current regime, deducting the 5 exempt UTA, the taxable base would be 95 UTA, falling into the bracket taxed at 2.5%. This would generate a tax to pay that hovers around 2 million pesos. With the approval of the megareform and its fifty percent reduction, the family would only disburse half, resolving the ownership of the property in life completely legally, avoiding future conflicts in an eventual inheritance partition trial.
Who should evaluate the transfer now
This temporary window is especially beneficial for parents or grandparents who own real estate assets and want to distribute them among their heirs in life, ensuring family peace and preventing scenarios where a sibling opposes selling the inherited house. It is also the ideal way to regularize asset transfers that currently operate informally.
What the new law does NOT change
It is essential to understand that the tax reduction does not relax the legal requirements of the procedure. The following obligations will remain unchanged:
- The judicial insinuation process: No real estate donation is valid in Chile without the prior authorization of a civil judge (a process known as insinuation).
- Prohibition of simulation: Faking a sale instead of declaring a donation will remain illegal and the SII will maintain its inspection and appraisal powers.
- Respect for legitimes: Life donations cannot violate the forced rights of the rest of the heirs (forced assignments).
Given that preparatory procedures (title studies, appraisals, and the insinuation request itself in courts) can take several months, the strategic recommendation is to contact the estate planning and inheritance area of our law firm now, in order to have the folders ready to enter the SII as soon as the law is promulgated.