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V2042-20 19 June 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
ISD · reducción por transmisión de participaciones

Wealth Tax exemption required to apply Inheritance Tax reduction on share transfers

A married couple inquired whether donating shares in their real estate development companies allows for the 95% reduction in Inheritance and Gift Tax. The Directorate General of Taxes (DGT) clarified that a necessary condition for this is that the shares must be exempt from Wealth Tax, which depends on whether the assets are tied to the economic activity in accordance with Personal Income Tax regulations.

The question raised

1.) Application of the reduction provided for in Article 20.6 of Law 29/1987 on Inheritance and Gift Tax. Furthermore, it is questioned whether the real estate properties used for the real estate development business activity of both companies can be understood as being used for the activity and therefore do not prejudice the access to and scope of the exemption for shares in Wealth Tax.

The DGT's ruling

The reduction provided for in Article 20.6 of the LISD requires as a necessary condition that the donated shares benefit from the exemption in Wealth Tax. To determine whether the assets are used for economic activity and thus satisfy the exemption, reference must be made to the provisions of the Personal Income Tax. The DGT cannot rule on whether specific real estate properties are necessary for the activity, as the suitability and proportionality of said assets must be assessed during an inspection.

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