English Trusts and the Spanish Tax Office (‘Hacienda’)
According to Wikipedia, trusts arise where one person (a “settlor”) gives assets (e.g. some land) to another person (a “trustee”) to keep safe or to manage on behalf of another person (a “beneficiary”). In other words, formal vs. beneficial ownership.
Spain does not have, in general terms, such an institution and therefore it is not recognized. However, a resident of Spain who sets up a trust abroad (and its heirs and beneficiaries) will be subject to Spanish taxes, pursuant to the findings of 2 rulings issued by the Spanish Directorate of Taxes (DGT) that conclude as follows:
- Setting up a trust is not subject to Transfer Tax.
- Income Tax: as the settlor continues to be the owner of the assets transferred to the trust -as far as Spain is concerned-, income taxes apply normally.
- Wealth Tax: as above, the settlor is subject to wealth tax on the net value of his/her worldwide assets and rights. However for 2013, Wealth Tax is not applicable.
- Gift Tax: transfers made from trusts to beneficiaries during the life of the settlor are subject to Spanish Gift Taxes provided the former is a Spanish tax resident or where not, if the assets and rights gifted are based in Spain, could be exercised or should be carried out in Spain.
- Inheritance Tax: transfers made from trusts to beneficiaries/heirs on death of the settlor are subject to Spanish Inheritance Taxes, provided the former is a Spanish tax resident or where not, if the assets and rights inherited are based in Spain, could be exercised or should be carried out in Spain, noting that the Spanish Tax Office does not distinguish, for this purpose, between inheritors and beneficiaries (contrary to English law).
- Life Insurance policies: beneficiaries will be subject to Spanish taxes provided they are Spanish tax residents or where not, if the policy was taken out with a foreign company operating in Spain.
The above would be applicable so long as Spain does not ratify the Hague Convention on the Law Applicable to Trusts, or the 1st of July 1985, or it decides to change its laws to accommodate this unique contribution of English law to the legal system, which seems very improbable.
Would the same rules apply if the trust were settled by a UK person while tax resident in the UK who later became tax resident in Spain?
Hi Antonio,
Has this situation changed in the last few years? Asking because I read an older article where they seem to arrive to the opposite conclusion:
http://link4business.info/wp-content/uploads/2009/04/a-guide-to-the-use-of-trusts-in-spain.pdf
“There has been a lot of inaccurate commentary in the media recently regarding the use of trusts by foreigners resident in Spain. Like many such short commentaries in this complex area, it is easy for less experienced advisers to misunderstand one of the most important
weapons in the armoury of those seeking a number of key financial planning advantages including, but not limited to, significant tax savings.
…
Conclusion
Despite claims to the contrary there is a body of legal precedent (as it would be called in the UK) to show that offshore trusts are acceptable in Spain
”
Could you please let us know your view about the subject at present?
Hi Mickael,
I have read the the article and it does not seem to refer to any Spanish laws or juridical/administrative jurisprudence, which is generally the source of valid information.
On the contrary, it makes statements that don’t have a link to the source, i.e.:”…it has been confirmed by specialist Spanish tax counsel that this does not apply to Offshore Trusts”, or “…Despite claims to the contrary there is a body of legal precedent (as it would be called in the UK) to show that offshore trusts are acceptable in Spain.”
Who are these so-called specialist tax advisors? What body of legal precedent?
I refer to this article on the matter, it being consistent with the opinion of this blog post:
http://www.cuatrecasas.com/media_repository/docs/esp/spanish_tax_treatment_for_foreign_trusts_196.pdf
I would be wary of what I call ‘experimental’ tax advice for which there is no official opinion on.
Joe,
That is correct.
Hi there,
I’ve just seen this post. As the author of the article you are discussing I thought that I’d just respond.
The blog that the article appeared on is not a technical one and so it isn’t appropriate to quote legal precedent or legal statute. The downloadable PDF does give some further detail.
As Joe has indicated the article and download are rather old and various things have changed. However I stand by the claim that trusts can be used based on structures that have been tested and accepted in Spain.
However, let us not forget that if lawyers all agreed there would be no need for judges. Indeed, in every case there is one lawyer who wins and one who loses.
Kind regards
James