The tax treatment of "trusts" in Spain has recently come under the spotlight with the binding resolution from the TEAC (Central Economic-Administrative Tribunal) dated May 30, 2025. This ruling provides crucial clarification on how these foreign legal instruments are taxed under Spain's Inheritance and Gift Tax (ISD).



Using this recent pronouncement as a guide, we will provide an overview of the current state of trust taxation in Spain, focusing on the key administrative criteria that have now been reaffirmed.

What Exactly Is a "Trust"?

Before diving into the tax implications, it is essential to understand the nature of a trust. Originating from Anglo-Saxon common law, a trust is a legal arrangement where an independent pool of assets is established by a person known as the "settlor" or "grantor." The administration of these assets is entrusted to a third party, the "trustee," for the benefit of another person, the "beneficiary." The beneficiary is entitled to receive the trust's assets upon the death of the settlor or the occurrence of a specified event.

In this structure, we can identify three key roles:

• The Settlor: The original owner of the assets who creates the trust.
• The Trustee: The individual or entity responsible for managing the trust's assets according to the established terms. The trustee is considered the legal owner of the assets they administer.
• The Beneficiary: The person who has the right to receive the trust's assets.

While this is the basic framework, the specific tax treatment of a trust in Spain must be analyzed on a case-by-case basis, as there are many different types of trusts, each governed by unique rules.

The Fundamental Conflict: Spanish Law vs. The Trust

The core of the tax debate in Spain arises from a fundamental legal conflict: the trust, as a legal institution, does not exist in Spanish law. Spain has not ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition.

This lack of legal recognition means that, from a tax perspective, the Spanish tax authorities (DGT) and the TEAC operate under a simple yet powerful premise: if the trust is not legally recognized, then its legal relationships are not considered to exist.

Based on this principle, the DGT and the TEAC have established the following key criteria for the taxation of trusts in Spain:

• Direct Transmission: Any transfers of assets or income from the trust to a beneficiary are considered to be direct transfers from the original settlor to the beneficiary. This means that the trust itself is effectively "disregarded" for tax purposes.
• Taxable Event: Because these transfers are considered to be direct, they are generally subject to the Spanish Inheritance and Gift Tax (ISD), provided the beneficiary is a Spanish tax resident or the assets are located in Spain. The specific moment the tax liability arises depends on the characteristics of the trust (e.g., revocable vs. irrevocable, discretionary vs. non-discretionary).

Key Conclusions from Administrative Rulings

The criteria above have been consistently applied in numerous administrative rulings, including the recent TEAC resolution. These rulings lead to several important conclusions for Spanish tax residents who are beneficiaries of trusts:

• Death of the Settlor: If the settlor dies while the trust is in effect, the beneficiary's acquisition of the trust's assets is treated as a direct "mortis causa" (inheritance) transmission from the settlor. This is a taxable event under the Inheritance Tax portion of the ISD.
• Transfers During the Settlor’s Lifetime: Any transfers of trust assets to the beneficiary while the settlor is alive are considered a direct "inter vivos" (gift) transmission from the settlor. This is a taxable event under the Gift Tax portion of the ISD.
• Trust Income: Any income generated by the trust's assets is considered to be earned directly by the settlor and must be declared in their personal income tax (IRPF) return if they are a Spanish tax resident.
• Wealth Tax: Similarly, the assets within the trust are deemed to remain part of the settlor's wealth and are subject to Spanish Wealth Tax (IP) if the settlor is a Spanish tax resident.

In both the recent TEAC resolution and its predecessor in January 2025, the tribunal confirmed that because the trust as a legal figure does not exist in Spain, the assets are considered to be transferred directly from the settlor to the beneficiary upon the occurrence of a taxable event.

Outlook: Awaiting Judicial Clarity

While the administrative criterion of the DGT and TEAC is now clear and consistent, a definitive legal precedent from the Spanish Supreme Court (Tribunal Supremo) is still pending.

The core of the legal debate is a civil law matter: whether a Spanish court could recognize a trust as the owner of the assets, as it is conceived in Anglo-Saxon law. For now, however, the administrative criterion remains the prevailing rule.

If you are a Spanish resident who is a beneficiary of a foreign trust, it is crucial to understand these tax implications and ensure your tax affairs are in full compliance with Spanish law. Please do not hesitate to contact us for a personalized consultation to discuss your specific situation.