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V1698-14 3 July 2014 · SG de Impuestos Patrimoniales, Tasas y Precios Públicos Criterion in force
ISD · reducción por empresa familiar

Reductions for business successions or gifts denied due to failure to meet kinship group requirements for Wealth Tax exemption

A query was raised regarding whether a family group could apply reductions to Inheritance and Gift Tax for the transfer of company shares. The Directorate General of Taxes (DGT) ruled that, as the holders are nephews and aunts (third-degree relatives), they do not constitute a kinship group under the law. This prevents the exemption from Wealth Tax and, consequently, the requested reductions.

The question raised

Application of the reductions provided for in articles 20.2.c) and 20.6 of the Inheritance and Gift Tax Law, based on the performance of management functions by certain members of the group.

The DGT's ruling

To apply the reductions provided in article 20.2.c) or 20.6 of Law 29/1987, it is a prerequisite that the transferred assets enjoy the exemption in Wealth Tax. This exemption requires that the holding be 5% individually or 20% jointly with a spouse, ascendants, descendants, or second-degree collaterals. As the subjects are third-degree collaterals, they do not form the kinship group necessary for the exemption. Likewise, management functions must be substantiated by contract or appointment to avoid difficulties before the Administration.

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