Partners in family businesses must have a family group executive to qualify for Wealth Tax exemption

The application of the Wealth Tax (IP) exemption for holdings in family businesses requires strict compliance with kinship and management requirements. The Dirección General de Tributos (DGT) has specified the scope of these criteria to avoid extensive interpretations that do not align with current regulations.

What the DGT has ruled

The binding ruling analyzes compliance with the requirements provided in Article 4.Eight.Two of Law 19/1991. The criteria establish two fundamental points:

• Kinship group: For the exemption to be valid, management functions must be exercised by a family member belonging exclusively to the group of spouses, ascendants, descendants, or second-degree relatives.
• Nature of management: Holding a nominal position is not enough. In roles such as department director, the requirement is met if the functions effectively involve the administration, management, direction, coordination, and operation of the company.

What it means for you

If you are a partner in a family business and intend to apply the exemption to your holdings for Wealth Tax, the company's command structure is decisive. If the person exercising management does not belong to the kinship circle defined by law (for example, a brother or a cousin, who are third-degree relatives), the exemption cannot be applied.

Likewise, the relevance of the management activity is key. Administration must be real and effective, focused on the management and coordination of the entity, so that the tax authority recognizes compliance with the rule.

What should be done

It is necessary to verify that the company's organizational chart complies with the kinship limits required by Law 19/1991. It must be confirmed that management functions fall upon a member of the permitted family group and that such tasks involve real operational management of the company. Since the structure of executive positions determines the tax situation of the partners, each case requires a detailed analysis of the corporate composition and management roles.