Family business tax adviser: planning that protects assets and enables generational succession

Family business taxation: where everything is interconnected

Family business taxation cannot be analysed in isolation. Corporate taxation, the personal tax position of shareholder-family members, and succession planning are so interrelated that a decision in one dimension inevitably affects the others. The shareholder-director’s salary determines whether the Wealth Tax family business exemption is maintained. The holding structure determines whether dividends can flow efficiently. The decision to gift during one’s lifetime or transfer via inheritance depends on the interaction between the donor’s IRPF, the donee’s ISD, and the business’s expected valuation growth.

At BMC we integrate these three dimensions into tax advice that makes consistent decisions with the ultimate objective: protecting the family business asset and ensuring its efficient transfer to the next generation.

The 50% threshold: the axis of family tax planning

The entire family business tax benefit system in Spain — Wealth Tax exemption, 95% ISD relief — pivots on the requirement that the shareholder performing managerial functions receives remuneration exceeding 50% of their total employment and capital income. This requirement appears straightforward but demands careful planning when the shareholder also has significant other income: rental income, dividends from other businesses, capital income.

We monitor this requirement annually for each family member performing managerial functions and adjust remuneration when necessary to ensure the exemption is not lost.

The family holding: the instrument of efficiency

Establishing a family holding above the group’s operating companies enables centralised management of the family’s assets, access to the fiscal consolidation regime or the intra-group dividend exemption, and facilitates succession planning. The holding is also the vehicle through which the rights of family shareholders not actively involved in management are structured.

We design the optimal holding structure for each family business, taking into account tax efficiency, family governance, and succession plans.

Succession planning: time is the scarce resource

Planning the transfer of the family business takes time. Lifetime gifts made gradually over several years allow full use of the lower bands of the progressive ISD scale before reaching the higher bands. Moreover, if the business grows in value, gifting today at a lower value is better than transferring via inheritance at a higher value.

We design the transfer plan with sufficient lead time for it to be tax-efficient and orderly from a family perspective.

Family business Corporate Income Tax planning

For the operating entity in a family group, the standard Corporate Income Tax planning toolkit is available: the capitalisation reserve (Art. 25 LIS — 10% deduction for net equity increases, retained in a 5-year restricted reserve), the equalisation reserve (Art. 105 LIS — additional 10% for SMEs below €10M turnover), and the free depreciation available for R&D qualifying assets and certain energy efficiency investments.

But family business CIT planning has an additional dimension: the interaction between the company’s dividend policy and the Wealth Tax exemption conditions. If the company distributes insufficient profits to allow the family shareholders to meet their personal tax obligations, the company may need to increase directors’ remuneration — which affects the 50% threshold. If it distributes too much, the company’s retained earnings (which build the equity that supports the capitalisation reserve deduction) are eroded. BMC designs an integrated annual planning cycle that optimises the dividend, salary, and reinvestment decision simultaneously.

Regional ISD planning: where the family lives matters

The 95% ISD relief is a national law provision, but its application is subject to the autonomous community of residence of the transferor (for inheritances) or the donee (for gifts). The practical consequences of this are enormous:

• Madrid: Near-complete ISD elimination for Groups I and II beneficiaries via the regional 99% rebate — effectively zero tax on family business share transfers
• Andalucía: Similarly generous since the 2019 reform — zero effective rate for Group I and II beneficiaries up to very high thresholds
• Catalonia: Progressive ISD scale with less generous reductions — even with the 95% relief, remaining taxable base is subject to Catalan rates
• Valencian Community: 99% reduction for Groups I and II — effectively zero for direct family transfers, but the regional legislation differs in detail from the national framework

For family businesses with shareholders dispersed across autonomous communities — a family where the founding generation lives in Catalonia but children have moved to Madrid — the ISD geography must be modelled before the transfer is planned. Changing autonomous community residence at least five years before the transfer can produce very significant ISD savings.

Corporate restructuring ahead of succession: the tax-neutral toolkit

Before implementing an intergenerational transfer, the corporate structure must often be reorganised to make the transfer as efficient as possible. The corporate restructuring provisions of Articles 76-89 LIS allow a range of transactions to be carried out at tax-neutral value (without triggering CIT gains at the reorganising entity or IRPF gains at the shareholder level):

Partial demerger (escisión parcial). Separating a real estate or investment portfolio into a new holding company, allowing the operating business to be transferred to the next generation without the legacy real estate.

Contribution of shareholdings (aportación de rama de actividad). Contributing the operating business shares to a family holding company in exchange for holding company shares — allowing family governance to be consolidated at the holding level.

Exchange of securities. Transferring shares in the operating company to a family holding in exchange for holding company shares — the shareholder exchanges at no immediate tax cost.

All of these restructurings must be genuinely business-motivated (Art. 89.2 LIS anti-avoidance) — BMC documents the business rationale for each restructuring as an essential element of the planning.

Gifting the family business: step-by-step planning

When the decision is made to transfer the business to the next generation by gift, the process involves several stages that must be coordinated carefully:

1. Pre-transfer valuation. The value of the shares for ISD purposes is determined — for non-listed companies, typically the maximum of the nominal value, the book value, and the capitalised earnings value (beneficio/0.05 under the default formula, or a direct negotiation with the AEAT on a more market-oriented basis).

2. Eligibility verification. Checking that all conditions of Article 20.2.c LISD are met — particularly the 50% remuneration threshold for the active shareholder, the 5%/20% shareholding threshold, and the genuine economic activity requirement.

3. Regional ISD filing. The ISD return is filed in the donee’s autonomous community of residence. The relief is applied, reducing the taxable base by 95%. The 10-year retention condition attaches from the date of the gift.

4. IRPF implications for the donor. A lifetime gift of shares normally triggers capital gains in the donor’s IRPF (difference between the gift value and the acquisition cost). BMC calculates this gain and plans the timing to minimise impact, including whether any exemptions (investment in protected assets, reinvestment) might apply.

BMC manages the complete gifting process from pre-transfer planning through post-transfer compliance, ensuring all conditions are met and maintained for the required retention period.