Trusts and Spanish tax: property in Mallorca, beneficiaries in Spain

How Spain sees a trust

For Spanish tax purposes the trust is, as a rule, disregarded. The assets are treated as still belonging to the settlor until they actually reach a beneficiary, and the transfer to the beneficiary is treated as a gift from the settlor, or as an inheritance if the settlor has died. That is the consistent position of the Directorate General for Taxation in its binding rulings.

Two consequences follow. The trust does not in itself shield assets from Spanish tax on the settlor while the settlor is resident in Spain. And the tax on the beneficiary arises when the distribution is made, not when the trust was set up.

When a beneficiary lives in Spain

• Distributions received by a beneficiary resident in Spain are generally taxed under inheritance and gift tax at the time of receipt, applying the rules of the region where the beneficiary lives. In the Balearic Islands, gifts between parents and children currently benefit from a 100% deduction, subject to its conditions.
• A Spanish-resident beneficiary may have reporting obligations on the trust assets abroad, because Spanish rules extend the Tax Form 720 to those who are the ultimate beneficial owners of foreign assets.
• Whether a discretionary beneficiary with no fixed entitlement has anything to report is a question of fact and of the trust deed, and it should be reviewed before the first Tax Form 720 is due.

When the settlor moves to Spain

A settlor who becomes Spanish resident is generally treated as still owning the trust assets. Their income may be attributed to the settlor for personal income tax, and the assets may count for wealth tax on worldwide assets. This is most clearly the case for revocable trusts, which are common in the United States, but the tax authority applies the same logic to many irrevocable ones.

The time to review a trust is before the move. Distributions, the removal of the settlor as beneficiary, or the timing of the move within the year can change the outcome, and none of them is easily undone once residence has started.

When a trust owns a Mallorca property

• The property is registered in the name of the trustee, since the trust itself has no legal personality in Spain. If the trustee is a non-resident company, the 3% special tax on property owned by foreign entities can apply unless an exemption fits.
• Trustees of express trusts, and of similar arrangements, must identify and keep records of the settlor, trustees, protector and beneficiaries, and declare them to the Spanish register of beneficial ownership when the trust acquires property in Spain or does business here.
• The notary will ask for that information at completion, and a purchase can stall if the trustee cannot provide it.

Your home country's rules still apply

The United Kingdom, Germany, Switzerland and the United States each tax trusts in their own way, and the Spanish treatment rarely matches. A distribution that is a gift in Spain may be income, capital or something else at home. Every question about a trust with a Spanish link should be looked at from both sides, with the trust deed and the letter of wishes in hand.

What we need to review a trust

• The trust deed and any deeds of variation, and the letter of wishes if there is one.
• The identity and residence of the settlor, trustees, protector and each beneficiary.
• A list of trust assets, and which of them are in Spain.
• The distributions made in recent years, and those that are planned.

Sources: Ley 29/1987 on inheritance and gift tax; Ley 19/1991 on wealth tax; article 42 ter of the General Regulations on tax management and inspection (Real Decreto 1065/2007); articles 4 and 4 bis of Ley 10/2010 on the prevention of money laundering; Real Decreto 609/2023 on the central register of beneficial ownership; articles 40 to 45 of the consolidated Non-Resident Income Tax Act.

This page is general information and reflects the rules in force on the date shown. It is not advice and does not replace an assessment of your own case.