Donations of company shares will not be taxed for Personal Income Tax (IRPF) if Inheritance and Gift Tax (ISD) Law requirements are met

The planning of the transfer of company shares among family members is a common tool for wealth management. However, the nature of these transfers usually implies the appearance of a capital gain or loss in the donor's Personal Income Tax (IRPF). A recent resolution from the Dirección General de Tributos (DGT) clarifies the scenario in which these operations are exempt from taxation in income tax.

What the DGT has resolved

The advisory body has determined that no capital gain or loss will be calculated in the lucrative transfers of company shares as long as the requirements established in Article 20.6 of Law 29/1987 on Inheritance and Gift Tax (ISD) are strictly met. For this exemption to be applicable, the following elements must concur:

• Donor condition: They must be 65 years of age or older, or suffer from a permanent disability. In the event that the donor performs management functions in the company, they must cease such functions.
• Donee condition: The recipient of the shares must maintain ownership of them and be entitled to the exemption in Wealth Tax for a period of ten years.

The DGT underlines that compliance with these requirements is independent of the applicable regional regulations.

What it means for you

If you are a natural person wishing to transfer your interest in a company to your descendants, this interpretation allows for more efficient wealth management. If the age or disability requirements are met, the operation will not be considered an onerous transfer for IRPF purposes, preventing the donor from having to declare a capital gain based on the difference between the acquisition value and the transfer value.

What should be done

Before proceeding with this type of donation, it is necessary to verify that all legal requirements demanded by state regulations are met. The correct accreditation of the cessation of management functions and the guarantee that the donee will maintain ownership during the legal period are critical aspects to avoid contingencies with the Tax Administration. Each family and corporate situation requires a prior analysis of the current regulations.