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.