Introduction: Why Trusts and Spain Rarely Fit Together
International families often rely on trusts as estate planning and asset protection vehicles. Spain, however, remains one of the few European jurisdictions that does not recognise the trust as a legal institution. It has neither acceded to the Hague Convention of 1985 nor enacted domestic legislation to accommodate trusts. As a result, Spanish law disregards the existence of the trust altogether, attributing ownership directly to the settlor and treating any eventual receipt by beneficiaries as a direct transfer.
The recent binding ruling V0986-25, issued by the Dirección General de Tributos (DGT) on 10 June 2025, offers a timely example of how this doctrine operates in practice. The case concerned a Panamanian settlor who also acted as trustee and sole beneficiary during his lifetime. Upon his death, his daughter—resident in Madrid and subject to the special impatriate regime under Article 93 of the Spanish Personal Income Tax Law, commonly known as the Beckham Law—was due to inherit trust assets. Although the trusts did not hold Spanish assets, the opinion clarifies how Spain approaches foreign trusts in circumstances where the beneficiary is an impatriate taxpayer.
The Spanish Tax Lens: Fiscal Transparency of the Trust
In line with longstanding doctrine, the DGT reaffirmed that the trust is deemed “not constituted” for Spanish purposes. This principle of fiscal transparency means that the settlor is treated as the continuing owner of any assets transferred into trust. Beneficiaries are not considered to own those assets while the settlor is alive, and therefore they are not subject to Wealth Tax or the Solidarity Wealth Tax. Should the trustee make a distribution during the settlor’s life, such a payment is analysed as a direct transfer from settlor to beneficiary, and if gratuitous, would be taxed accordingly under Spanish Gift Tax rules.
On the death of the settlor, the picture changes. At that point, the assets in trust are treated as passing directly from the settlor to the beneficiaries. The DGT was clear that the tax point is not the settlement of the assets into trust, but rather the death of the settlor. Beneficiaries who are resident in Spain are liable to Spanish Inheritance and Gift Tax on the entire value of the assets they acquire, irrespective of where those assets are located.
Wealth Tax and Solidarity Tax During the Settlor’s Lifetime
The ruling makes it clear that beneficiaries need not include trust assets in their annual Wealth Tax or Solidarity Wealth Tax filings so long as the settlor is alive. This reflects the fundamental assumption that the settlor retains legal ownership. The only circumstances in which this principle may be challenged are those where the beneficiary has an enforceable right over the trust assets that is effectively equivalent to ownership, or where distributions have been made during the settlor’s lifetime. Outside these limited exceptions, the obligation rests with the settlor, not the beneficiary.
Inheritance Tax: The Direct Transfer on Death
The principal tax exposure arises at death. The DGT confirmed that, under Spanish law, the beneficiary inherits directly from the settlor for tax purposes, regardless of the existence of the trust structure. Even if the deceased settlor held no Spanish assets, a beneficiary who is a Spanish tax resident is subject to Inheritance Tax on worldwide acquisitions by virtue of their personal obligation to the tax.
In such cases, the applicable law is determined by the beneficiary’s region of residence. In the example addressed in V0986-25, this meant the Community of Madrid. Where there is no regional connection through the deceased, competence falls to the National Office for Non-Resident Successions of the Spanish Tax Agency. In other words, the trust’s foreign nature does not diminish Spain’s ability to tax the inheritance comprehensively.
The Beckham Law: Limited in Scope
A recurring source of misunderstanding among expatriates is the scope of the Beckham regime. Article 93 LIRPF permits certain inbound workers and executives to be taxed as if they were non-residents, applying a simplified and often more favourable treatment of employment income. However, V0986-25 reiterates that the regime is strictly limited to income tax mechanics. It does not alter the individual’s residence for other Spanish taxes, nor does it shield them from Wealth Tax, the Solidarity Wealth Tax or Inheritance Tax. The DGT’s conclusion is categorical: the impatriate regime is an income tax incentive only, and it cannot be relied upon as an estate planning or wealth protection tool.
Structural Nuances and Case-by-Case Analysis
The DGT was careful to emphasise that the treatment of trusts ultimately depends on their terms. Revocable trusts, where the settlor retains control, will generally defer taxation until death. Irrevocable arrangements or discretionary trusts may trigger earlier taxation if beneficiaries obtain vested rights. Spanish-situs assets can also alter the applicable regime, sometimes changing both the competent authority and the regional tax law applied.
Moreover, trusts where the settlor is also trustee, or where protectors exercise significant veto powers, are regarded with suspicion. Spanish practice often interprets such control arrangements as indicators that the settlor or beneficiary should be considered the true owner for tax purposes.
Practical Implications for International Families
For international families relocating to Spain, the implications of V0986-25 are substantial. Structures that work effectively in common law jurisdictions often fail to achieve their intended outcomes under Spanish law. Estate plans designed to defer taxation through trust vehicles are disregarded, with potentially significant fiscal consequences.
Liquidity planning becomes crucial. Beneficiaries may face substantial Inheritance Tax liabilities on worldwide assets immediately upon the settlor’s death. Ensuring that liquidity is available, whether through life insurance, pre-emptive distributions or other mechanisms, is essential. Equally, the compliance burden is heavy. Spanish tax audits are formalistic and documentary. Families should maintain a complete dossier of trust deeds, amendments, letters of wishes, valuations and trustee minutes in anticipation of potential scrutiny.
Regional nuances must also be considered. Even where there are no Spanish assets, the residence of the beneficiary determines the applicable Comunidad Autónoma’s tax rules, including deductions, allowances and multipliers.
Our Commentary: Aligning Planning with Spanish Realities
The ruling confirms what practitioners have long advised: Spain applies a civil law lens that prioritises substance over form. The trust, so central to Anglo-Saxon private wealth planning, is invisible in Spain. For high-net-worth families, the key is not necessarily to abandon trusts altogether, but to adapt them to Spanish realities.
That may involve restructuring trusts before relocation, using corporate or insurance wrappers recognised under Spanish law, or anticipating succession events in advance. Above all, it requires recognising that the Beckham regime is not a comprehensive solution. It is a useful incentive on the income tax side, but it does nothing to mitigate Wealth Tax or Inheritance Tax exposure.
DGT Ruling V0986-25 distils the Spanish position into three clear propositions: the trust is disregarded, the settlor retains ownership during his lifetime, and on death a direct transfer occurs that is fully taxable in Spain. For international families, and especially those considering relocation under the Beckham regime, the message is that income tax optimisation alone is insufficient. Without careful integration of trusts into Spanish-compatible estate planning, the intended advantages may be lost at the Spanish border.
