Wealth and inheritance tax

Spanish Wealth Tax (IP) and Inheritance & Gift Tax (ISD) are ceded to the autonomous communities, with sharply differing regional rules: Madrid and Andalusia apply rebates close to 100%; Catalonia, Valencia and Asturias tax significantly. The Temporary Solidarity Tax on Large Fortunes (ITSGF) has partly re-centralised wealth taxation for net wealth above €3 million.

The family business exemption (Art. 4.Ocho Wealth Tax Act and 95% reduction in Inheritance Tax) is the main vehicle for inter-generational wealth planning. It requires meeting the participation threshold (5% individually or 20% jointly with the family group), the management-function test and the test that the relevant person’s main remuneration derives from those functions. Recent Supreme Court case law has clarified the computation of the 50% main-income test in complex holding structures.

Cross-border succession combines EU Regulation 650/2012 (the law applicable to the succession, normally that of the decedent’s habitual residence) with Spanish taxation by connecting factor: residence of the decedent, residence of the heir, location of assets. CJEU C-127/12 and Additional Provision 2 of the ISD Act allow applying the most favourable regional regime where EU/EEA non-residents are involved — and, by Supreme Court extension, to residents of third States.

This section covers wealth planning, cross-border succession, family business, gifts and succession pacts.

Frequently asked questions about Spanish Inheritance and Gift Tax for the foreigner becoming a Spanish tax resident

Frequently asked questions about Spanish Inheritance and Gift Tax (ISD) from the perspective of the foreigner becoming a Spanish tax resident: personal obligation on worldwide inheritance and gifts received, treatment of …

Family business: negative income from other economic activities does not enter the denominator of the 50%

The High Court of Justice of Catalonia confirms that losses from other economic activities do not enter the denominator of the 50% management-functions calculation in the family-business exemption. The rejection of the …

Negative income from other economic activities is not computed in the 50% management-functions calculation under the family-business exemption

Family-business exemption: the remuneration received from companies transferred in the framework of a restructuring is excluded from the 50% calculation at the level of the holding company

Restructuring into a holding: the prior remuneration of the subsidiaries does not cloud the 50% of the family business

The DGT confirms that the contribution of subsidiaries to a holding does not break the family-business exemption: the prior remuneration from the transferred subsidiaries is not integrated into the 50% calculation at the …

The total division to facilitate generational handover is a valid economic reason for the purposes of the FEAC regime of the Corporate Income Tax

Total division to prepare generational handover: valid economic reason under the FEAC regime

The DGT confirms that a total division aimed at preparing succession and facilitating generational handover is a valid economic reason under article 89.2 of the LIS and accesses the FEAC regime.

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 foreign transfer of holdings in a German KG holding Spanish real estate to a Familienstiftung is not subject to ITPAJD, but the DGT leaves the 314 LMV rule and the indirect real-estate capital gain under IRNR unaddressed