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V3316-20 6 November 2020 · SG de Impuestos Patrimoniales, Tasas y Precios Públicos Criterion in force
ISD · trust

Trust distributions deemed direct transfers from settlor to beneficiary subject to Inheritance and Gift Tax

The taxpayer inquired about the taxation of trust distributions made to beneficiaries. The Directorate General for Taxes (DGT) ruled that, as the concept of a trust is not recognised under Spanish law, such transfers are considered to be made directly between the settlor and the beneficiary.

The question raised

First question raised: Whether the distributions made by the trustee in favor of the other beneficiaries during the lifetime of the taxpayer shall be understood as inter vivos transfers made directly by the taxpayer in favor of her descendants. Taxation depending on whether the beneficiary is a resident or non-resident in Spain.

The DGT's ruling

Due to the tax transparency of the trust, distributions ordered by the trustee in favor of the beneficiaries are considered direct transfers from the settlor to the beneficiary. If made during their lifetime, they are inter vivos transfers subject to the Gift and Inheritance Tax; if they occur upon death, they are mortis causa transfers. Tax liability will depend on the habitual residence of the beneficiary or the location of the assets.

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