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

The Spanish Directorate-General for Taxation (DGT) applied, in two binding rulings issued in 2025, its doctrine on the foreign trust as an institution not recognised under Spanish law. V0022-25 of 9 January concludes that contributing shares in a family business to a trust is not a gift for the purposes of article 33.3.c) of Law 35/2006 of 28 November on Personal Income Tax (LIRPF).

V1700-25 of 18 September concerns the succession of a non-resident settlor. It refers to V0986-25 of 10 June 2025, requested by the same applicant, and adds that, since the transfer is direct from father to daughter, regional kinship reliefs could apply, although the DGT does not rule on their content.

The starting point: the trust is not recognised in Spain

Spain does not regulate the trust —an institution of common law countries whereby the settlor transfers assets to a trustee to manage for the beneficiaries— and has not signed the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition.

Since ruling V1991-08 of 30 October 2008, the DGT has held that, for tax purposes, relations between those contributing assets to a trust and its beneficiaries are treated as taking place directly between them, as if the trust did not exist. Contributions to the trust in principle have no effect, and transfers made by the trustee to the beneficiaries are treated as direct transfers from the settlor to the beneficiary. When the transfer takes place depends on the features of each trust and the arrangements governing it.

For personal income tax, the DGT has stated that income arising is treated as obtained directly by the person who set up the trust. The attribution rules in article 11 LIRPF may also apply to the parties “insofar as the income belongs to individuals who are personal income taxpayers and derives from assets they own or over which they hold rights under the arrangements established for setting up and operating the ‘Trust’” (our translation).

V0022-25: contributing shares in a family business

The applicant holds 28.92 % of a company in which he performs management functions, with remuneration exceeding 50 % of his employment and business income. He plans to set up one or more irrevocable trusts, contribute those shares to them and name as beneficiaries his daughters, resident in the United States. He would have no discretionary powers over the trusts, but his daughters could not transfer the shares without his consent for ten years.

He asks whether the wealth tax exemption in article 4 of the Wealth Tax Act (LIP) would apply to the shares, whether the reduction in article 20.6 of the Inheritance and Gift Tax Act (LISD) would apply to their contribution, and whether the rule in article 33.3.c) LIRPF would apply, under which no capital gain arises on gratuitous transfers of businesses or interests covered by article 20.6 LISD.

The DGT refers to ruling V0718-19 of 29 March 2019 and transcribes it. Its conclusion is that “setting up a ‘Trust’ by contributing the company interests cannot be regarded as a gift of those interests for the purposes of article 33.3.c)” LIRPF (our translation). The reason is that setting up a trust and making a gift are different legal transactions: a trust allocates assets to a separate fund managed by a trustee, whereas a gift is an act of liberality accepted by the donee.

V0022-25 therefore only answers the personal income tax question. It does not rule on article 4.Eight LIP or on article 20.6 LISD. In our view, it follows from the transparency doctrine that the applicant retains ownership of the shares, so the wealth tax exemption would continue to depend on its own requirements, and that the contribution does not trigger the article 20.6 LISD reduction.

The transcribed V0718-19 also includes a caveat taken from V0817-18 of 26 March 2018. Where trustee and beneficiary coincide, it must be assessed, in light of the trust arrangements and the facts, whether the beneficiary’s powers of disposal amount to ownership, in which case the transfer would be deemed to take place on the contribution.

V1700-25: the succession of a non-resident settlor

The applicant is the same as in V0986-25. Her father, resident in Panama, has set up several trusts in which he is settlor, trustee and sole beneficiary for his lifetime; on his death, the beneficiaries will be, among others, the applicant and her descendants. The trusts hold no assets in Spain. The applicant lives in Madrid and applies the article 93 LIRPF regime from 2024 to 2029.

The question is specific: whether, on her father’s death, the regional inheritance tax kinship reliefs would apply according to the degree of her relationship with him.

The DGT transcribes the conclusions of V0986-25. There it had held that, on the settlor’s death, there is in principle a direct mortis causa transfer to the daughter, subject to inheritance tax under personal obligation; that the rules of the region where the greatest value of the assets situated in Spain is located apply or, if there are none, those of the region of residence, here Madrid; and that the tax is collected by the National Tax Management Office.

On that basis, V1700-25 answers that, since this is a direct transfer from father to daughter, “the reliefs, reductions and multipliers provided for in the relevant rules on grounds of kinship could apply, provided that the other requirements are met” (our translation). It recalls, however, that it has no competence over regional legislation (article 55.2.a of Law 22/2009 of 18 December).

Our assessment

In our view, the two rulings confirm a settled doctrine with predictable effects. Its consequences are, however, asymmetrical.

For lifetime transfers of a family business, transparency works against anyone seeking to use a trust: there is no gift for the purposes of article 33.3.c) LIRPF and, with it, the rule excluding the capital gain is lost. Anyone wishing to access that rule and the article 20.6 LISD reduction will have to use the instruments of Spanish law, such as a direct gift.

On succession, by contrast, transparency allows the acquisition to be treated as an inheritance from the father, with access to the kinship reliefs of the applicable regional rules. Their scope will depend on those rules, on which the DGT does not rule.

Practical consequences

When the transfer is deemed to take place depends on the trust documents. If the settlor is intended to retain ownership until death, the beneficiary’s powers of disposal during the settlor’s lifetime should not amount to ownership, and this should be documented.

It is also advisable to keep the documents evidencing the features of the trust —governing law, parties, powers, revocability, discretionary nature—, because both rulings make their conclusions subject to the tax authorities’ assessment of the facts.

Finally, where the settlor is not resident in Spain, the applicable regional rules will depend on where the assets situated in Spain are located and, if there are none, on the heir’s residence. Before planning on that basis, it is advisable to check the requirements the relevant region imposes for its tax reliefs.