La Taxation of trusts in Spain This has become a recurring theme in law firms, inspections, and inquiries to the Directorate General of Taxes (DGT). Increasingly, families with international assets are using trusts established in common law jurisdictions, and sooner or later, these assets or income end up being linked to our tax system.
The big problem is that The trust does not exist as a recognized legal concept in Spanish law.Neither at the civil nor tax level, which necessitates "translating" its effects into specific legal categories. This generates a vast array of cases, administrative criteria that have evolved over time, and, let's face it, a good deal of legal uncertainty that should be understood before making estate planning decisions.
What is a trust and who is involved in its operation?
In common law countries, the Trust is a long-established institution which is used to organize family assetsInvesting flexibly and, above all, planning for succession. It stems from common law and is based on the idea of separating formal ownership of assets from economic ownership.
In simplified terms, in a trust a person (settlor or grantor) transmits a set of patrimonial elements -money, real estate, company shares, investment portfolios, etc.- to a third party (trustee), who is responsible for managing them according to pre-established rules, with the purpose that, at a certain time (death of the settlor or a certain milestone), these assets or their returns are attributed to one or more beneficiaries.
The typical structure revolves around three fundamental figuresHowever, in practice, variations and additional charges are incorporated that complicate the scheme:
- Settlor or grantorThe settlor of the trust decides which assets are contributed and under what conditions they are managed and distributed. They often retain certain powers (to revoke the trust, change beneficiaries, replace trustees, etc.), which is key to its tax treatment.
- TrusteeThe trustee is a natural or legal person who manages the trust's assets. They are the legal owner of the assets under common law, with fiduciary duties of loyalty and diligence towards the beneficiaries and respecting the letter of wishes or the trust agreement.
- beneficiariesThose entitled to receive the returns, the capital, or both, under the agreed conditions. They may be current, future, or contingent beneficiaries, or form part of a group over which the trustee has discretionary power of distribution.
Many designs include a trust protectorThe figure who supervises the trustee can veto certain decisions or even dismiss him, acting as a counterweight when the assets are significant or the family wants to maintain some indirect control over the management.
From the point of view of the rules that govern them, trusts can be revocable or irrevocableDiscretionary or participatory trusts (interest-in-possession trusts) grant the settlor or trustee varying degrees of administrative power. In the United States, for example, a grantor trust is one in which the settlor retains sufficient control over the assets and income. All these nuances necessitate a case-by-case analysis in our legal system.
Spain does not recognize trusts: basic civil and tax consequences
In Spain There is no law regulating trusts or equivalent legal structure Furthermore, the State has not ratified the Hague Convention of July 1, 1985, on the Law Applicable to Trusts and their Recognition. At the civil level, the Supreme Court has made it clear that this is a common law transaction that is foreign to and incompatible with our inheritance rules.
This lack of recognition has a very significant fiscal consequence: The trust is considered non-existent for the purposes of Spanish tax lawIn colloquial terms, the tax authorities look "through" the trust and focus on the real relationships between the person who contributes the assets (settlor) and the person who actually benefits from them (beneficiary), ignoring the trustee as an intermediary.
Hence the criterion of tax transparency of the trust, reiterated by the DGT in multiple consultations (V1991-08, V0010-10, V0936-13, V2703-13, V3394-19, V0970-20, V1256-20, V2216-21, V2429-22, V2033-22, V0022-25, V0986-25, among others): the transfers of assets or income that foreign law attributes to the trust are understood, in Spain, to be carried out directly between settlor and beneficiaries.
Consequently, for our internal purposes The key is to determine if, when, and to whom a transmission has occurred The ownership of the assets, and whether that transfer is inter vivos (donation or other gratuitous transaction) or mortis causa (inheritance or legacy), will determine the application of Inheritance and Gift Tax (ISD), Personal Income Tax (IRPF/IRNR), and Wealth Tax.
Establishment of the trust: is there or is there no transfer for Spanish purposes?
One of the most delicate points is deciding whether The constitution of the trust implies, in itself, a transfer of the assets from the settlor to the beneficiaries or to another subject, or if, on the contrary, ownership is maintained in the assets of the settlor until a later time.
The DGT has insisted that, As a general rule, the mere creation of a trust does not produce tax effects in Spain.In consultation V3394-19, for example, it is stated that, in the absence of recognition of the figure, "the trust is not considered to be constituted and the legal relationships regulated by it do not have effect," unless it is clear from the documents and circumstances that someone other than the settlor acquires a power of disposition comparable to ownership.
In consultation V0970-20, the case of a mother who established a trust with financial investments, designating her daughter and any descendants as beneficiaries, was analyzed. The DGT concluded that The initial contributions of assets to the trust had no effect on either the mother or the daughter.precisely because, in Spain, it is considered that ownership of the assets continued to belong to the settlor.
A similar situation occurs in ruling V3316-20, where, despite the trust being classified as irrevocable, the settlor retained the power to change the beneficiary. For the Tax Office, When the settlor maintains such intense control over the assets, there can be no talk of effective transferIt is understood that he continues to own the assets and, therefore, bears the corresponding taxation.
However, the DGT has also admitted that There may be cases where the contribution to the trust constitutes a true transfer of ownership.In consultation V0817-18, it was indicated that when the person acting as trustee is also the beneficiary and effectively has powers over the assets equivalent to civil ownership, a transfer could be considered to have occurred at the time of the trust's creation. However, this assessment is subject to the decisions made on a case-by-case basis by the Management and Inspection bodies.
For the purposes of Personal Income Tax (IRPF), Article 33 of the tax law defines capital gains and losses as variations in the value of assets that become apparent as a result of a change in their compositionUntil the transfer is deemed to have taken place, there is no alteration, so that no gain or loss is generated for the settlor simply by contributing assets to the trust, nor is a valid donation configured for the purposes of the reduction of article 20.6 LISD or the exemption of the gain in 33.3.c) LIRPF, as clarified by consultation V0022-25.
Trust maintenance: Personal Income Tax, Non-Resident Income Tax, Wealth Tax and formal obligations
If the trust is “ignored” for our legal purposes, The income generated by the contributed assets must be attributed to the owner who has been considered for civil and tax purposesIn most cases, as long as no transmission is observed, that title remains the settlor.
Ruling V0022-25 is particularly clear: in a case where a Spanish taxpayer contributed his shares in an operating company to an irrevocable trust for the benefit of his daughters residing in the USA, the DGT determined that The contributions are not considered donations and the returns (dividends, capital gains, etc.) must be attributed to the father in his personal income tax., as if he still owned the shares.
In consultation V3394-19 and others, this idea is emphasized: Since there is no trust under our legal system, the settlor or, where applicable, the beneficiary who has become the owner, must declare all income generated in Personal Income Tax (IRPF) or Non-Resident Income Tax (IRNR). (interest, dividends, rents, capital gains). This is done by applying the general rules of qualification (income from movable capital, real estate, capital gains, etc.) and of temporal imputation of article 14 LIRPF: in general, when the income is due, not when the trust distributes the money.
This is clearly illustrated in consultation V2467-21, which examined a family trust with loans granted to a holding company. The interest collected by the trust The income was considered as investment income attributable to the beneficiary resident in Spain, becoming part of the savings base. The subsequent physical transfer of funds from the trust to the beneficiary does not generate a new taxable event; taxation occurs when the income accrues, not when the money is "withdrawn".
The interaction between trusts and international tax transparency regime of Article 91 of the Spanish Personal Income Tax Law (LIRPF). In the same ruling V2467-21, the question was whether the percentage of ownership in a non-resident holding company should be calculated by adding the shares held by other non-resident family members through their own trusts. The Spanish Directorate General of Taxes (DGT) concluded that, in order to exceed the 50% threshold that triggers transparency requirements, Only shares held by personal income tax (IRPF) taxpayers are counted.Non-resident relatives are excluded from the calculation, even if they have economic interests in the company via a trust.
In matters of Wealth Tax, the criterion follows the same logic of ownership. In ruling V2033-22, the Venezuelan father of a resident in Madrid established a trust governed by Florida law, remaining the primary beneficiary for life. The Spanish Tax Agency (DGT) understood that The settlor remained the owner of the assetsTherefore, the son residing in Spain should not include anything in his declaration of assets, as he is not the legal owner of those assets.
However, if the holder for Spanish purposes (settlor or beneficiary, as the case may be) is a resident, You must declare the trust's assets located abroad in form 720 When the thresholds are exceeded, it is necessary to assess whether the assets are subject to Wealth Tax or the Temporary Solidarity Tax on Large Fortunes. The Administration has clarified that the non-recognition of the trust does not exempt the holder from these obligations; it simply transfers ownership to the individual who, in essence, controls the assets.
Inter vivos transfers: donations from the settlor to the beneficiaries
When, during the life of the settlor, it is agreed that part of the capital or the returns of the trust will be delivered to a beneficiary, Spain classifies this operation as a lucrative inter vivos transfer directly from the settlor to the beneficiary.ignoring the intervention of the trust or the trustee.
Case V0970-20 is paradigmatic: the mother had established a trust with financial investments and a Protective Committee that ordered payments to the beneficiary. The DGT indicated that, if a donation is formalized in a document in which the beneficiary expressly accepts the attributionThis is a direct donation from the mother to the daughter, subject to the ISD in its donation modality, without any prior transfer when the assets were contributed to the trust.
This criterion is repeated in ruling V2429-22, in which an irrevocable and discretionary British Virgin Islands trust had a Madrid resident as its sole beneficiary. If the trustee agreed to a distribution of assets in her favor through a deed of appointment, the DGT concluded that It was a direct inter vivos donation from the father (settlor) to the daughterAs she was a resident in Spain, she was required to pay taxes under the ISD (Inheritance and Gift Tax) by personal obligation, and could apply the regulations and tax benefits of the Community of Madrid.
Scenarios have even been analyzed in which the trust has intermediate structures, such as holding companies or investment vehicles. Consultation V0970-20 raised the issue of dissolving interposed companies without immediate allocation of assets to the beneficiary, and subsequently the possibility of the settlor ordering a donation. According to the DGT (Spanish Directorate General of Taxes), The dissolution without adjudication has no effect on the Spanish beneficiary.However, the eventual subsequent donation of assets or returns does constitute a transfer subject to ISD, again as a direct donation from the settlor.
From the perspective of the resident constituent's personal income tax, in these cases where a transfer is observed, A capital gain or loss is generated by the difference between the acquisition value and the transfer value.Unless a specific exemption or deferral regime applies. And from the beneficiary's side, in addition to the Inheritance and Gift Tax (ISD), the classification as a donation prevents the inclusion of that income in Personal Income Tax (IRPF), as it is a taxable event under a different tax.
Transfers mortis causa: death of the settlor and hereditary acquisition
When the settlor dies and the trust is still “alive”, the key question is when is the acquisition of the goods by the beneficiaries considered to have taken place: at the time of the contribution to the trust, upon death or at the moment when the trustee specifically allocates the assets.
The DGT and the TEAC have been consolidating the thesis that, unless a prior transfer had been observed, The death of the constituent causes a direct mortis causa transmission from the settlor to the beneficiary., with the consequent subjection to the ISD for hereditary acquisition.
In case V2216-21, a mother had established an irrevocable trust under English law in 1988 with five beneficiary children, one of whom resided in Spain. Following the mother's death in 2016, the trustees were considering distributing the assets. According to the DGT (Spanish Directorate General of Taxes), The transmission occurred at the time of the mother's death., the moment when, in the eyes of the Spanish legal system, the children acquired the trust's assets mortis causa, even though in practice the material adjudication could be delayed.
Along the same lines, consultation V3394-19 and subsequent consultations emphasize that The taxpayer resident in Spain is subject to the ISD (Inheritance and Gift Tax) by personal obligationAll inherited assets and rights, whether or not located in our country, must be declared. The statute of limitations for the Administration's right to assess the tax begins the day after six months have elapsed since the death, unless extended or interrupted in accordance with the General Tax Law.
The TEAC has adopted this doctrine in relevant resolutions (for example, RG 3418/2023 and RG 5163/2022), where it confirms that, since the trust lacks recognition, The assets "pass by" and are considered to be transferred directly from the deceased to the beneficiaryIf the transfer occurs due to the death of the settlor, a taxable event of acquisition mortis causa is configured in the ISD, with the resident beneficiary being the liable party.
From the perspective of the deceased's personal income tax, this classification has an interesting effect: The latent capital gain in assets transferred upon death is not subject to taxation.This is thanks to the exemption provided for in Article 33.3.b of the Spanish Personal Income Tax Law (LIRPF) (the so-called "deceased's capital gain"). In other words, any increase in the value of assets held in the trust is not taxed in the settlor's final personal income tax return, with the tax burden being concentrated in the inheritance and gift tax (ISD) of the heir.
Trusts and special residence schemes: the case of displaced persons
Another issue that has emerged is What happens when the beneficiary of the trust is taxed in Spain under a special regime?, such as that of posted workers (art. 93 LIRPF), the so-called Beckham regime. The binding consultation V0986-25 addresses precisely a case of this type.
In that consultation, the taxpayer's father, a tax resident in Panama, had established several trusts in which he acted as settlor, trustee, and sole beneficiary for his lifetime. The daughter, a resident in Spain under the special regime for expatriates, could inherit the trust's assets upon her father's death. The DGT (Spanish Directorate General of Taxes) concluded that, While the father is alive, the trust's assets do not form part of the daughter's estate. and therefore should not include them in your Wealth Tax or in the Temporary Solidarity Tax on Large Fortunes.
With the death of the father, however, a direct transfer mortis causa from the deceased to the designated beneficiariessubject to the ISD. And here comes the key nuance: the fact of being taxed under the displaced persons regime only affects the IRPF; It does not alter the status of resident in Spain nor exempt one from filing and paying the ISD (Inheritance and Gift Tax). by personal obligation over all inherited assets, wherever they may be.
Regarding the application of regional regulations, when the deceased is a non-resident and there are assets located in Spain, The autonomous community where these assets are located is taken as a reference.And if there are no Spanish assets, the regulations of the heir's region of residence usually apply. In the case of residents of Madrid, this means they can benefit from the generous tax breaks and reductions available to descendants and spouses.
In terms of jurisdiction, when neither the deceased has been a resident in an autonomous community nor is there a clear point of connection, The management of the ISD falls to the General State Administration, normally through the National Tax Management Office and the departments specializing in non-resident inheritances.
All these criteria – DGT, TEAC, Supreme Court – paint a picture in which the The concept of the trust is "dismantled" and reinterpreted using the categories of our civil and tax law.This necessitates a meticulous, case-by-case analysis of who truly holds the power of disposition, when the transfer takes place, and which tax applies. For family fortunes that utilize trusts abroad, understanding these rules has become almost essential to avoid unpleasant surprises, lengthy audits, and unnecessary double taxation.
