Children may apply the 95% reduction in Inheritance and Gift Tax

The planning of family business transfers requires a precise analysis of the tax reliefs applicable to Inheritance and Gift Tax (ISD). A recent binding ruling from the Directorate General of Taxes (DGT) has clarified the possibility for descendants to access the reduction provided for in current regulations.

What the DGT has ruled

The issue raised focused on determining whether children can enjoy the relief established in Article 20 of Law 29/1987 regarding the donation of the shares they are to receive. The regulatory analysis is based on the Inheritance and Gift Tax Law (LISD), the Wealth Tax Law (LIP), and the Personal Income Tax Law (LIRPF).

What it means for you

For donors and donees, this criterion confirms that the transfer structure must align with legal requirements to avoid losing the tax advantage. Access to this 95% reduction is not automatic and depends on strict compliance with several factors:

• Profile of the subjects: Donees must meet the established age and management role requirements.
• Maintenance of the investment: It is necessary to ensure the permanence of the investment over time to avoid losing the right to the relief.
• Nature of the assets: The allocation of assets and the company's activity, especially in holding-type structures, influence the application of exemptions and reductions.

What should be done

Since the application of this reduction is conditional upon meeting management and permanence requirements, it is necessary to assess each case individually. The correct classification of the company's activity and the children's position within the command structure are determining elements to ensure that the donation of shares complies with LISD regulations.