The DGT consolidates the tax transparency of the foreign trust: the inter vivos contribution is not a gift for IRPF purposes and the mortis causa transfer to the resident beneficiary opens access to the regional ISD legislation

The Directorate-General for Taxes has consolidated throughout 2025 the doctrine of the foreign trust as a figure not recognised in the Spanish legal order, under the canonical principle of tax transparency: the legal relations governing the contributors and beneficiaries of the trust are considered as carried out directly between them, as if the trust did not exist. Two binding consultations of this same year delineate the two most relevant operational aspects for the contributor who plans with a trust. V0022-25, of 9 January 2025, closes the path to assimilating the inter vivos contribution to the trust to a gift for the purposes of article 33.3.c) of the Personal Income Tax Act (LIRPF) and, by reflex, to the reduction of article 20.6 of the Inheritance and Gift Tax Act (LISD) characteristic of the gift of a family business. V1700-25, of 18 September 2025, confirms that the mortis causa transfer from the settlor to the Spanish-resident beneficiary is made directly, is subject to the Inheritance and Gift Tax by personal obligation and, where the decedent is non-resident, allows the beneficiary to access the regional legislation of the place where the greatest value of the estate located in Spain lies or, failing that, of the Autonomous Community of his or her residence.

It is helpful to begin with the legislative framework, because the doctrine of the trust in the Spanish tax system rests on a structural premise whose operative projection is not always appreciated in its proper measure.

The Spanish legal order has no material regulation of the trust. Spain has not signed the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition, nor does it have a domestic law that regulates a similar figure. The consequence is of weight: the foreign trust is not recognised in Spain as a vehicle with autonomous legal personality and, in tax matters, operates under the principle of tax transparency —the DGT’s reiterated doctrine since binding consultation V1991-08 of 30 October 2008, and consolidated in a long subsequent series (V0010-10, V1016-10, V0936-13, V2703-13, V0989-14, V1003-14, V1224-14, V1225-14, V1226-14, V1495-16, V0695-17, V0817-18, V0718-19, up to the V0022-25 and V1700-25 that now concern us)—. The contribution of assets and rights to the trust has, in principle, no effects: the settlor retains the ownership of the contributed assets. Transfers from the settlor to the beneficiary, ordered through the trustee, are considered direct transfers from the former to the latter.

This structural premise is projected over four tax figures. In the Personal Income Tax, the income generated by the assets contributed to the trust is deemed obtained directly by the settlor, in accordance with the income-attribution rules of article 11 of the LIRPF. In the Net Wealth Tax, the assets contributed to the trust remain in the ownership of the settlor —not of the beneficiary—. In the Temporary Solidarity Tax on Large Wealth, the same rule. In the Inheritance and Gift Tax, the transfer is deemed to take place directly between the settlor (grantor) and the beneficiary, at the moment when that transfer is made effective —with the contribution if the beneficiary has powers of disposal equivalent to ownership, or with the death of the settlor if the powers were deferred to that moment—.

The two consultations of 2025 illustrate the two relevant operational aspects for the contributor. It is helpful to present them separately, because each provides an operative key.

V0022-25, of 9 January 2025, examines the case of a consulting party resident in Spain for tax purposes, holder of 28.92% of the shares of a Spanish company in which he performs management functions remunerated with an amount exceeding 50% of all of his work and economic-activity income —the classic profile of the businessman entitled to the family-business exemption of article 4 of the Net Wealth Tax Act and, accordingly, to the reduction of article 20.6 of the LISD on the inter vivos transfer of the family business—. The consulting party proposes to set up one or more irrevocable trusts, contribute the shares to them, designate as beneficiaries his daughters resident in the United States, retain himself the power to prevent the transfer of the shares by the daughters for a period of ten years, and lack discretionary powers over the trust. The question put to the DGT is threefold: does the exemption of article 4 of the LIP apply to the shares contributed to the trust? Does the reduction of article 20.6 of the LISD apply to their contribution? Does the exemption of the capital gain of article 33.3.c) of the LIRPF apply, which operates where the inter vivos transfer of the family business avails itself of the reduction of 20.6 of the LISD?

V1700-25, of 18 September 2025, examines a different profile. The consulting party’s father, a Panamanian tax resident, has set up several trusts in which he himself is settlor, trustee and sole beneficiary during life; on the father’s death, the beneficiaries become, among others, the consulting party and her descendants. The trusts currently have no assets located in Spain, although the planning contemplates that, were they to have any, the proportionally greatest value would lie in the Community of Madrid. The consulting party is a Spanish tax resident, is taxed under the special regime of article 93 of the LIRPF for tax periods 2024 to 2029 —inbound expatriate under the Beckham regime— and stays in the territory of the Community of Madrid for the greater number of days within each calendar year. The question put is whether, on the death of her father, she may apply the abatements, reductions and multiplying coefficients on grounds of kinship provided for in the regional legislation.

The DGT’s aggregated response to both consultations is articulated on three pillars that warrant separate treatment.

First, the tax transparency of the trust as a structural premise. The DGT formulates it with identical wording in both consultations, in line with the reiterated doctrine since 2008: “in the absence of recognition of the ’trust’ figure, in principle, it is taken as not constituted, and accordingly the legal relations governed by it produce no effects. Therefore, the contributions of assets to the ’trusts’ referred to in the consultation submission have, in principle, no effects”. The operative consequence of this premise is direct: the settlor retains the ownership of the assets contributed to the trust until the moment of their effective transfer to the beneficiary, a moment that will depend on the specific characteristics of the trust —revocable or irrevocable, discretionary or non-discretionary, coincidence or not between trustee and beneficiary during life—. Accordingly, the beneficiary must not include the assets in his or her Net Wealth Tax or Temporary Solidarity Tax on Large Wealth returns until the transfer has taken place.

Second, the characterisation of the inter vivos transfer in V0022-25. The DGT, referring to V0718-19, answers clearly: “the constitution of a ‘Trust’ by contribution of the share participations cannot be considered to constitute a gift of those participations for the purposes provided for in article 33.3.c) of Law 35/2006”. The conclusion is structural and follows from the very premise of transparency: if the trust does not exist for the purposes of the Spanish legal order, the contribution of the shares to the trust is not a gift because there is no effective transfer of ownership to the trust. The consulting party continues to be the owner of the shares. The consequence is projected over the three questions consulted: the exemption of article 4 of the LIP continues to operate at the level of the consulting party —if the substantive requirements of the family business are met—; the reduction of article 20.6 of the LISD is not triggered by the contribution, because there is no gift for the purposes of the Spanish legal order; and the exemption of article 33.3.c) of the LIRPF does not operate, because it presupposes the inter vivos gift availing itself of the reduction of 20.6 of the LISD, which does not concur here. The DGT adds a relevant factual nuance: where the figures of trustee and beneficiary coincide, “it must be assessed, in accordance with the agreements of the ’trust’ and the factual situation, whether the beneficiary’s powers of disposal over the assets of the ’trust’ are equivalent to ownership over those assets, in which case the transfer would be deemed to take place upon the contribution of assets to the ’trust’”. The assessment falls to the Inspection, not to the Centre.

Third, the characterisation of the mortis causa transfer and access to the regional legislation in V1700-25. The DGT, referring to V0986-25 of 10 June 2025, sets the applicable regime: “in case of death of the ‘settlor’ —father of the consulting party— the consulting party will acquire the corresponding share of the assets and rights incorporated to the ’trusts’, this being a ‘mortis causa’ transfer subject to the Inheritance and Gift Tax under article 3.1.a) of the LISD, made directly by the ‘settlor’ in favour of the consulting party”. The transfer is subject to the ISD by personal obligation —the consulting party is resident in Spain—. On administrative competence, since the decedent is non-resident and there is no connecting point with any Autonomous Community, the levy corresponds to the Central State Administration, specifically to the National Office of Tax Management, Non-Residents Inheritance Department. And, on the central question of the consultation, the DGT confirms the applicability of the regional legislation: the consulting party is entitled to apply the legislation enacted by the Autonomous Community where the greatest value of the assets and rights of the estate located in Spain lies and, if there is no asset located in Spain, the legislation of the Autonomous Community of residence of the taxpayer —in the case raised, the Community of Madrid—. The abatements, reductions and multiplying coefficients on grounds of kinship “could apply”, provided the substantive requirements provided for in the relevant regional legislation are met, whose assessment is not for the DGT but for the managing tax Administration.

In our view, the two consultations offer a coherent and now fully consolidated doctrinal reading of the trust in the Spanish tax system. The tax transparency as a structural premise —sustained since 2008 and which the DGT has reiterated in more than a dozen pronouncements— is no longer incipient doctrine but settled criterion, with predictable effects for the contributor and the adviser. The consolidation of the concept of direct settlor-beneficiary transfer, modulated by the moment of effective externalisation, allows planning with reasonable certainty. However, that same transparency has asymmetric effects on the Spanish businessman: it closes the path to inter vivos planning via trust —because there is no gift for the purposes of the reduction of 20.6 of the LISD or the exemption of 33.3.c) of the LIRPF— but, simultaneously, opens the path to mortis causa transfer from the foreign settlor to the Spanish beneficiary with access to the regional ISD legislation, which in some Autonomous Communities —Madrid, notably, with a 99% abatement on inheritance between parents and children— turns out to be extraordinarily favourable.

Subject to the foregoing, the doctrine signals three operative caveats that warrant separate retention.

The first, on the inter vivos planning of the Spanish businessman. V0022-25 closes the path to the irrevocable trust as a vehicle of inter vivos transfer of a family business with the reduced taxation of the binomial articles 20.6 of the LISD + 33.3.c) of the LIRPF. The planning aimed at the generational succession of the Spanish businessman, where he intends to remain resident in Spain, must be articulated by the traditional route: direct gift with reduction of 20.6 of the LISD and exemption of 33.3.c) of the LIRPF; succession pact in the Autonomous Communities with their own civil regulation allowing it; or, where applicable, fideicommissary substitution under the Civil Code. The irrevocable trust as a vehicle serves other purposes —asset protection against third parties, functional segregation, inter-family planning, control of disposal by the beneficiaries— but does not provide the reduced taxation of the Spanish inter vivos binomial.

The second, on the risk of coincidence between trustee and beneficiary. V0022-25 expressly warns that, where trustee and beneficiary coincide and the beneficiary’s powers of disposal over the assets are equivalent to ownership, the transfer is deemed to take place with the very contribution to the trust. The clause of the consulting party in V0022-25 retaining for ten years the power to prevent the transfer of the shares by the daughters is, in this sense, defensively useful: it reinforces that effective ownership has not yet passed to the beneficiaries. But the limit is factual and case-by-case, and the Inspection has margin to find otherwise. Planning with trusts in analogous cases must document contemporaneously the effective restrictions to disposal and, where applicable, articulate partial reversibility clauses that preserve the settlor’s control during life.

The third, on access to the regional ISD legislation by the resident beneficiary. V1700-25 opens a relevant operative window for the Spanish beneficiary of a foreign trust whose settlor is non-resident: the mortis causa transfer is governed by the regional legislation of the place where the greatest value of the estate located in Spain lies or, failing that, of the Autonomous Community of the taxpayer. Planning must contemplate the location of the trust’s wealth before the death of the settlor —if access to the more favourable regional legislation is to be ensured— and the residence of the taxpayer —in the case of V1700-25, the consulting party resides in Madrid under the Beckham regime, with a 99% abatement on inheritance between parents and children under the regional legislation in force—. The combination foreign trust + Spanish beneficiary under the Beckham regime + regional residence with high abatement produces, in the typical case, an extraordinarily favourable succession taxation.

The practical consequence is highly relevant for intergenerational wealth planning.

It is advisable, first, to calibrate the moment of effective externalisation of the transfer. The DGT’s doctrine allows the settlor to retain ownership of the assets contributed to the trust until his or her death, the moment at which the direct mortis causa transfer to the beneficiary takes place. If this is the desired planning, the contractual articulation of the trust must ensure that the beneficiary’s powers of disposal during the life of the settlor are effectively residual: not equivalent to ownership. The irrevocability clauses combined with effective restrictions to disposal by the beneficiary, and the coincidence between settlor and trustee, are the elements that the Inspection examines.

It is advisable, second, to document contemporaneously the specific characteristics of the trust —applicable law, deed of constitution, identification of settlor, trustee and beneficiaries, scope of powers, revocable or irrevocable status, discretionary or non-discretionary character— and to preserve such documents for any eventual Inspection. The DGT recalls in both consultations that its conclusions are conditioned on the factual assessment that the tax Administration carries out in accordance with the rules of article 13 of the General Tax Act; the contemporaneous evidential file is the defensive tool.

It is advisable, third, to articulate the mortis causa transfer of the foreign trust to the Spanish beneficiary with the aim of optimising access to the regional ISD legislation. Planning must weigh where the wealth of the trust is located before the death of the settlor —to trigger the connecting point of the greatest value of the estate located in Spain, if access to a specific regional legislation is sought—; the residence of the beneficiary at the time of death —which operates as a subsidiary connecting point if there are no assets in Spain—; and the prior-residence periods required by some Autonomous Communities to access the abatements —in Madrid, with no specific requirements; in other Autonomous Communities, with a minimum-residence requirement—.

In conclusion, what these two consultations of the Directorate-General for Taxes make clear is that the doctrine of the foreign trust in the Spanish tax system, articulated on the principle of tax transparency and the direct settlor-beneficiary transfer, has consolidated as a settled criterion with predictable effects for the contributor. V0022-25 closes the path of the irrevocable trust as a vehicle of reduced inter vivos taxation on the transfer of the family business; V1700-25 simultaneously opens a mortis causa route with access to the regional ISD legislation that, in typical cases, can turn out to be extraordinarily favourable. Intergenerational wealth planning of the contributor with cross-border ties must therefore be articulated with awareness of the asymmetric effects of the doctrine and with a contemporaneous evidential file that allows the intended characterisation to be sustained before the Inspection.

Sources

• Directorate-General for Taxes, binding consultation V1700-25 of 18 September 2025, Sub-Directorate-General for Wealth Taxes, Charges and Public Prices: petete.tributos.hacienda.gob.es.
• Directorate-General for Taxes, binding consultation V0022-25 of 9 January 2025, Sub-Directorate-General for Personal Income Taxes: petete.tributos.hacienda.gob.es.
• Directorate-General for Taxes, binding consultation V0986-25 of 10 June 2025, direct precedent expressly invoked by V1700-25: petete.tributos.hacienda.gob.es.
• Directorate-General for Taxes, binding consultation V0718-19, direct precedent expressly invoked by V0022-25: petete.tributos.hacienda.gob.es.