95% reduction in the donation of lottery administration licenses

The gratuitous transfer of a license for the administration of lotteries constitutes a taxable event subject to Gift and Inheritance Tax (ISD). Recently, the Directorate General of Taxes (DGT) has specified the necessary conditions for this operation to benefit from the 95% reduction provided for in current regulations.

What the DGT has ruled

The ruling establishes that the donation of a lottery administration license may qualify for the reduction under Article 20.6 of the Law on Gift and Inheritance Tax (LISD). To achieve this, several fundamental requirements must be met concurrently:

• Relationship and donor conditions: The required family bond must exist, and the donor must meet the established age or disability criteria.
• Cessation of functions: The donor must cease their management functions within the activity.
• Maintenance of value: The donee must maintain the value of the received economic activity.
• Wealth Tax exemption: The activity must be the taxpayer's main source of income, so that it is exempt from Wealth Tax in accordance with the Law on Wealth Tax (LIP).

What this means for you

If you are the owner of a lottery administration and plan to transfer said license to a family member, the tax burden could be significantly reduced. However, the mere transfer of the license is not enough. A lottery administration is considered a professional business, which implies that the operation must comply with the rules for the transfer of economic activity and strictly adhere to the requirements of the LISD and RD 1704/1999.

The donee, who is usually the son or daughter of the donor, assumes the status of the taxpayer and has the responsibility to maintain the activity to avoid losing the tax benefit.

What should be done

Given the complexity of the concurrent requirements, it is necessary to verify that the activity meets the income thresholds required for the Wealth Tax exemption. Each situation presents particularities regarding the cessation of functions and the valuation of the activity; therefore, it is recommended to assess each case individually to ensure compliance with the applicable regulations.