Taxation of trusts in Spain: Inheritance and Gift Tax, Personal Income Tax, Wealth Tax and Spanish-resident beneficiaries

Trusts* are commonly used in common law jurisdictions for private wealth, inheritance and family estate planning. However, when a foreign trust has a connection with Spain —because a beneficiary is tax resident in Spain, because assets are located in Spain, because the settlor dies, or because distributions are made— significant Spanish tax issues may arise.

*Trust: a legal institution typical of common law jurisdictions. It is sometimes translated into Spanish as "fideicomiso", although it is not directly equivalent to the Spanish civil law concept of sustitución fideicomisaria or to fiduciary succession mechanisms under Spanish civil law.

The main difficulty is that Spain does not have a unified tax regime for trusts, nor an equivalent domestic legal institution. The Spanish tax authorities have repeatedly adopted a central approach: the trust is not recognised as an autonomous institution under Spanish law and, therefore, its tax consequences are analysed by looking at the direct economic relationship between the person who contributes the assets —the settlor or grantor— and the person who receives them —the beneficiary.

This approach appears, among others, in Binding Tax Ruling DGT V1454-22 of 20 June 2022 and Binding Tax Ruling DGT V2429-22 of 23 November 2022.

The practical consequence is significant: in many cases, the involvement of the trustee does not prevent Spain from characterising the transaction as a direct transfer from the settlor to the beneficiary. Depending on the case, that transfer may be subject to Spanish Inheritance and Gift Tax, Spanish Personal Income Tax, Spanish Wealth Tax, the Temporary Solidarity Tax on Large Fortunes, or Corporate Income Tax if the beneficiary is not an individual.

This analysis is particularly relevant for beneficiaries who are tax resident in Spain, families with wealth structures in common law jurisdictions, trustees required to execute distributions with a Spanish connection, heirs of foreign settlors, and international advisers who need to coordinate Spanish taxation with the trust documentation.

Quick answer

In Spain, a trust is not always taxed as an autonomous entity. The Spanish tax authorities tend to apply a transparency-based approach: they analyse who contributed the assets, who has the economic right to them, when the asset attribution takes place, and whether the beneficiary is tax resident in Spain.

If the beneficiary is an individual and receives assets or rights gratuitously, the transaction may be subject to Spanish Inheritance and Gift Tax. If the attribution takes place during the settlor's lifetime, the natural classification will be an inter vivos gratuitous transfer. If it takes place upon the settlor's death and the trust had a succession purpose, it may be classified as a mortis causa acquisition.

The Central Economic-Administrative Tribunal —TEAC— has reinforced this approach in recent decisions dated 22 January 2025 and 30 May 2025, the latter classified as official doctrine.

1. Why trusts create tax problems in Spain

A trust allows the separation of functions that, in civil law systems, are usually held together. A person —the settlor— transfers or allocates certain assets to a trustee, who administers them according to the terms of the trust for the benefit of one or more beneficiaries, or for a specific purpose.

In common law countries, this structure may produce proprietary, succession and fiduciary effects of its own. In Spain, however, the institution raises a classification problem: there is no equivalent domestic institution, Spain has not adopted a substantive trust regime, and Spain has not ratified the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition, as recalled by the Spanish Directorate-General for Taxation in its rulings.

Therefore, the Spanish tax question is not simply whether the trust exists under the foreign law that governs it. The relevant question for the Spanish tax authorities is different: what asset transfer has actually taken place, between whom, at what time, and on what legal basis.

2. The DGT doctrine: tax transparency of trusts

The Spanish Directorate-General for Taxation —DGT— has maintained a consistent position: for Spanish tax purposes, since the trust is not recognised as an autonomous legal institution, the relationships between contributors and beneficiaries are deemed to take place directly between them, as if the trust did not exist.

This idea appears clearly in Binding Tax Ruling DGT V1454-22. In that case, the taxpayer was tax resident in Madrid; his father, tax resident in Venezuela, had created a revocable trust under Florida law; the trust was not expected to hold assets in Spain; and the taxpayer would become beneficiary after the settlor's death. The DGT took the view that the transfers ordered by the trustee in favour of the beneficiary were to be treated as direct transfers from the settlor to the beneficiary.

Binding Tax Ruling DGT V2429-22 confirms the same logic in a particularly relevant case: a trust initially revocable and later irrevocable and discretionary, governed by the laws of the British Virgin Islands, with a settlor resident in Colombia, a foreign trustee and a beneficiary tax resident in Madrid. The trust had no assets or income in Spain; the only Spanish connection was the tax residence of the beneficiary. Even so, the DGT concluded that a distribution in favour of the beneficiary could be subject to Spanish Inheritance and Gift Tax under unlimited tax liability.

The administrative doctrine may be summarised as follows:

• the initial contribution to the trust does not necessarily produce an autonomous taxable transfer in Spain;
• the trustee is not usually treated as the true transferor for Spanish tax purposes;
• subsequent distributions may be classified as direct transfers from the settlor to the beneficiary;
• if the beneficiary is an individual, the natural tax will be Spanish Inheritance and Gift Tax where there is a gratuitous acquisition;
• if the beneficiary is a legal entity, Spanish Inheritance and Gift Tax will not apply, but Corporate Income Tax must be analysed;
• income generated by the trust assets may, depending on the case, be attributed to the settlor or analysed according to the economic reality of the attribution.

3. Relevant administrative and economic-administrative doctrine

The importance of these decisions lies not only in their technical content, but also in the fact that they allow a relatively stable analytical framework to be built: in Spain, the trust is not examined as a separate entity with its own tax personality, but as a structure whose tax relevance depends on the real transfer of assets that takes place between settlor and beneficiary.

4. Trusts and inheritance: when Spanish Inheritance and Gift Tax may apply mortis causa

The most delicate case is a trust with a succession purpose. This occurs when the trust has been created so that, upon the settlor's death, the assets or rights pass to the designated beneficiaries.

Law 29/1987 on Spanish Inheritance and Gift Tax taxes increases in wealth obtained gratuitously by individuals. In acquisitions by reason of death, the taxable event includes the acquisition of assets and rights by inheritance, legacy or any other succession title.

The TEAC decision of 30 May 2025, procedure 00/05163/2024, is especially relevant. The case concerned whether assets and rights held through a trust had to be included in the taxable base of Spanish Inheritance and Gift Tax. TEAC held that, since the trust does not exist as such in Spain, it is deemed not to have been created and the assets contributed to it pass directly from the person who created the trust to the beneficiary, making the transaction subject to ISD. If the creation of the trust was intended to transfer assets mortis causa from the deceased to his or her heirs, the transaction constitutes a taxable event for ISD as a mortis causa acquisition.

This criterion reiterates the TEAC decision of 22 January 2025, RG 3418-2023, and is also based on the administrative doctrine of the DGT, in particular Binding Tax Ruling V2033-22 of 21 September 2022, cited by TEAC itself.

The consequence is clear: if a beneficiary who is tax resident in Spain receives assets from a trust after the settlor's death, it is not sufficient to state that the assets come from a foreign trust. It must be analysed whether, from a Spanish tax perspective, there is a gratuitous mortis causa acquisition subject to Spanish Inheritance and Gift Tax.

5. Trusts and gifts: inter vivos distributions

When the distribution takes place during the settlor's lifetime, the tax classification may move towards a gift or inter vivos gratuitous transfer.

Binding Tax Ruling DGT V2429-22 is particularly useful on this point. The DGT analysed an irrevocable and discretionary trust in which the beneficiary resident in Spain had no power over the assets until distributions were made in her favour. The question was whether a distribution through a Deed of Appointment, whether in cash or foreign financial assets, should be treated as a direct gift from the settlor to the beneficiary.

The DGT's answer was affirmative: the distribution would be understood as an inter vivos gratuitous transfer directly from the settlor to the beneficiary, subject to Spanish Inheritance and Gift Tax under unlimited tax liability if the beneficiary is resident in Spain.

This is relevant because the tax accrual does not always occur upon the mere creation of the trust. In many cases, Spain does not consider the taxable transfer to have taken place when the assets are initially contributed to the trust, but when the attribution in favour of the beneficiary is formalised or materialised.

The DGT insists that the specific features of the trust must be examined: whether it is revocable or irrevocable, discretionary or non-discretionary, what rights the beneficiaries have, what powers the settlor retains, and what powers the trustee has.

6. Beneficiary resident or non-resident in Spain: unlimited and limited tax liability

The tax residence of the beneficiary is one of the critical points. If the beneficiary is tax resident in Spain, Spanish Inheritance and Gift Tax may apply under unlimited tax liability, regardless of where the assets or rights forming the increase in wealth are located.

This appears in both Binding Tax Ruling V1454-22 and Binding Tax Ruling V2429-22. In both cases, the DGT considered it relevant that the beneficiary was tax resident in Spain in order to subject the gratuitous transfer to ISD under unlimited tax liability.

Therefore, it is not decisive that the trust has no assets in Spain. It may be sufficient that the beneficiary is Spanish tax resident and receives a gratuitous asset attribution, whether in cash, financial assets, shares, real estate or rights with economic value.

This point has considerable practical importance for international families: a trust created in the United States, the United Kingdom, Canada, Jersey, the British Virgin Islands or another jurisdiction may have no assets in Spain and, nevertheless, produce Spanish tax consequences if the beneficiary is tax resident in Spain.

The reverse situation may also arise: the beneficiary may not be tax resident in Spain, but the trust may include real estate, rights or assets located, exercisable or enforceable in Spain. In that case, possible taxation in Spain under limited tax liability must be analysed, without prejudice to reviewing the connecting factors and the applicable rules in each case.

7. Applicable regional tax rules

When the beneficiary is resident in Spain, regional tax rules may be decisive in calculating the final amount of Spanish Inheritance and Gift Tax. An acquisition subject purely to state rules is not the same as an acquisition to which the rules of an autonomous community with relevant allowances or reductions apply.

For gifts of assets and rights other than real estate, Law 22/2009 generally looks at the habitual residence of the donee on the date of accrual. To determine habitual regional residence for ISD purposes, the relevant criterion is the highest number of days spent in the territory of an autonomous community during the immediately preceding five years, counted from date to date and ending on the day before the tax accrual.

The DGT, in both V1454-22 and V2429-22, accepts that a beneficiary resident in Madrid may apply the regional tax rules of Madrid if that is the autonomous community where he or she has had habitual residence under the rules of Law 22/2009.

However, the DGT itself recalls that it is not competent to rule on the specific application of regional tax benefits enacted by an autonomous community within the scope of its powers. In practice, this point requires careful review of the beneficiary's tax and regional residence, the date of accrual, the type of transfer and the formal requirements imposed by the applicable regional rules. In international cases —non-resident deceased persons, non-resident beneficiaries or assets located in Spain— the Second Additional Provision of the ISD Law and the applicable connecting factors must also be reviewed. In practice, regional tax rules may be decisive in calculating the correct tax liability.

In autonomous communities with significant inheritance or gift tax benefits, the economic difference may be substantial. But those benefits should not be applied automatically: the personal, temporal, documentary and formal requirements of each regional regime must be verified.

8. Trusts and Spanish Wealth Tax

Spanish Wealth Tax raises a different difficulty: determining whether the beneficiary must include rights over the trust assets in his or her taxable wealth before receiving an effective distribution.

The answer cannot be automatic. In Binding Tax Ruling V1454-22, the question was expressly raised as to whether, during the settlor's lifetime, the trust assets should be subject to Spanish Wealth Tax in the hands of the beneficiary resident in Spain.

The logic of the DGT is that, if for Spanish purposes the trust is deemed not to exist and the settlor retains fiscal ownership of the assets, the beneficiary should not automatically include them if he or she is not yet their owner and does not hold a current economic right over them.

The TEAC decision of 30 May 2025 also addresses the relationship between trusts and Wealth Tax in its regulatory references, although the core of the criterion concerns the inclusion of the trust assets in the taxable base of Spanish Inheritance and Gift Tax.

The analysis must distinguish between beneficiaries with consolidated rights, merely expectant beneficiaries, discretionary beneficiaries, settlors who retain revocation or disposal powers, and structures in which a protector or trustee has relevant powers.

In high-net-worth estates, it may also be necessary to analyse the possible impact of the Temporary Solidarity Tax on Large Fortunes.

9. Trusts and Spanish Personal Income Tax: income, distributions and the risk of double classification

Not every amount received from a trust should automatically be classified as an inheritance or gift. There may be income generated by the assets, accumulated income, periodic distributions, capital gains or payments requiring their own analysis under Spanish Personal Income Tax.

The DGT has stated, citing earlier rulings such as V1016-10, that if the trust is not recognised in Spain, the income generated by the trust assets may be understood as obtained directly by the settlor when the settlor continues to be regarded as the fiscal owner of the assets.

The key is to avoid two opposite mistakes.

• The first is to treat any payment from a trust as personal income without analysing whether there is a gratuitous acquisition subject to Spanish Inheritance and Gift Tax.
• The second is to treat any distribution as an inheritance or gift without distinguishing whether what is received consists of income generated by assets, capital, economic rights or a gratuitous attribution.

This issue has been relevant in case law from Spanish High Courts of Justice in relation to inherited trusts, Modelo 720 and Personal Income Tax. In some decisions of the High Court of Justice of Madrid, assessments as unjustified capital gains were annulled where ownership derived from an inheritance, with the consequence that the natural tax treatment was not Personal Income Tax but, where applicable, Spanish Inheritance and Gift Tax.

10. Corporate beneficiary: possible Spanish Corporate Income Tax

Spanish Inheritance and Gift Tax taxes gratuitous increases in wealth obtained by individuals. Therefore, if the beneficiary of the trust is a legal entity, the transaction is not subject to ISD, without prejudice to possible taxation under Spanish Corporate Income Tax.

This clarification appears in the DGT doctrine: gratuitous transfers in favour of corporate beneficiaries are not subject to Spanish Inheritance and Gift Tax and must be analysed, where appropriate, under the Corporate Income Tax regime.

This is an important point in complex wealth structures, especially where the trust interacts with holding companies, foreign foundations, investment vehicles or family entities.

11. Modelo 720 and reporting obligations

Foreign trusts may also create reporting issues, especially where there are accounts, securities, insurance policies, real estate or rights located abroad.

The analysis of Modelo 720 should not be carried out mechanically: it is necessary to determine who is the legal owner, who has power of disposal, what economic rights exist and whether the beneficiary has a current legal position or merely an expectation.

The practical risk is twofold.

On the one hand, reporting obligations may be omitted when the beneficiary resident in Spain already has relevant economic rights.

On the other hand, assets may be incorrectly reported when they do not yet form part of the beneficiary's legal or economic estate, creating inconsistencies with Spanish Inheritance and Gift Tax, Personal Income Tax or Wealth Tax.

In this area, the decisions of the High Court of Justice of Madrid mentioned above are useful because they show that the mere appearance of a trust abroad does not automatically justify an assessment as an unjustified capital gain for Personal Income Tax purposes, especially if the acquisition derives from an inheritance and should be analysed from the perspective of Spanish Inheritance and Gift Tax.

12. Documentation needed to analyse a foreign trust

Before filing taxes, accepting distributions or reporting assets linked to a trust, the full documentation should be reviewed.

In particular:

• deed or document creating the trust;
• trust deed and subsequent amendments;
• letters of wishes, if any;
• identification of the settlor, trustee, protector and beneficiaries;
• law governing the trust;
• whether the trust is revocable or irrevocable;
• whether the trust is discretionary or non-discretionary;
• current or future rights of the beneficiaries;
• powers retained by the settlor;
• death documentation, where applicable;
• probate or foreign succession documentation;
• distribution agreements, deeds of appointment or trustee instructions;
• asset valuations;
• history of distributions;
• tax residence of the settlor and the beneficiaries;
• existence of assets in Spain;
• existence of assets, accounts, securities or real estate abroad;
• tax returns filed in other jurisdictions;
• sworn translation, apostille or legalisation where required.

In international trusts, the Spanish tax analysis cannot be based solely on a trustee summary. It is necessary to understand the legal architecture of the trust and, at the same time, translate its effects into the Spanish tax system.

13. Frequent risks

The most common mistakes are the following:

• assuming that the trust is not taxed in Spain because it was created abroad;
• confusing the existence of the trust with the absence of a taxable event;
• reporting as Personal Income Tax what may be Spanish Inheritance and Gift Tax;
• failing to report under ISD a mortis causa attribution from the trust;
• failing to analyse whether the beneficiary is taxed under unlimited tax liability in Spain;
• applying regional tax benefits without checking residence, accrual and formal requirements;
• failing to distinguish between revocable, irrevocable, discretionary and non-discretionary trusts;
• failing to correctly value the beneficiary's rights;
• failing to analyse Spanish Wealth Tax or the Temporary Solidarity Tax on Large Fortunes;
• ignoring reporting obligations for assets and rights abroad;
• failing to coordinate the Spanish analysis with the foreign lawyer, trustee or tax adviser.

In high-net-worth matters, a classification error may lead to tax assessments, interest, penalties, loss of tax benefits or disputes between heirs and beneficiaries.

14. Practical analytical framework

To analyse the taxation of a trust in Spain, a clear sequence should be followed.

First, identify the parties: settlor, trustee, protector and beneficiaries.

Second, determine the tax residence of each of them.

Third, examine whether the trust has assets or income in Spain.

Fourth, review whether the beneficiaries have current rights, future rights or mere expectations.

Fifth, determine whether an effective distribution has taken place.

Sixth, classify the cause of the attribution: inter vivos, mortis causa, income, capital, economic right or liquidation.

Seventh, apply the relevant tax and the applicable regional tax rules.

The key is not to translate the trust literally into Spanish law, but to identify its real economic and legal effect in order to determine the Spanish tax consequence.

15. When a technical review is advisable

The Spanish tax treatment of a foreign trust should be reviewed before carrying out any of the following actions:

• accepting a distribution from the trustee;
• signing a Deed of Appointment;
• filing Spanish Inheritance and Gift Tax;
• reporting assets or rights under Modelo 720;
• including or excluding rights for Spanish Wealth Tax purposes;
• applying regional tax benefits under ISD;
• interpreting a distribution as Personal Income Tax income;
• distributing assets after the settlor's death;
• coordinating an international estate with beneficiaries resident in Spain.

In these structures, the critical issue is usually not only how much tax is payable, but whether the transaction has been correctly classified from the outset.

An incorrect classification may trigger a chain of errors: wrong tax, wrong autonomous community, wrong accrual date, wrong taxpayer, wrong taxable base or insufficient documentation to defend the position adopted before the Spanish tax authorities.

16. Conclusion: a trust does not eliminate Spanish taxation

A foreign trust may be a valid and effective instrument in its jurisdiction of origin. But its use does not, by itself, neutralise Spanish taxation where there are beneficiaries resident in Spain, assets located in Spain or asset attributions with a Spanish connection.

The current doctrine of the DGT and TEAC points to a central idea: Spain does not recognise the trust as an autonomous subject or institution for internal tax purposes and therefore tends to look through the structure to identify the direct relationship between settlor and beneficiary.

During the settlor's lifetime, a distribution may be taxed as a gift.

After the settlor's death, if the trust had a succession purpose, it may be taxed as a mortis causa acquisition.

If income is generated, Spanish Personal Income Tax may need to be analysed.

If current economic rights exist, Spanish Wealth Tax or the Temporary Solidarity Tax on Large Fortunes may come into play.

If the beneficiary is a legal entity, the issue may shift to Spanish Corporate Income Tax.

However, one underlying question remains, and it is not merely a tax question: does this tax solution —which treats the trust as if it did not exist and connects the settlor directly with the beneficiary— coincide with the legal nature that civil doctrine, succession case law and private international law attribute to the foreign trust?

The answer requires a different analysis: not only tax-based, but also civil and succession-based. For that reason, this study is complemented by our analysis of the civil and succession effects of foreign trusts in Spain, particularly in relation to heirs, forced heirship rights, applicable law and recognition of effects.