The taxation of trusts in Spain: how the look-through doctrine works in practice

The trust is one of the most useful instruments in common law estate planning and one of the least legible to a Spanish tax inspector. Spanish civil law contains no concept of the trust, and Spain has not ratified the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition. The consequence is not that a trust is ignored, but that Spain taxes as though it were not there. This is the look-through approach, or fiscal transparency.

The doctrine is long settled in the administrative practice of the Dirección General de Tributos (the DGT), and as of 2025 it is no longer only administrative practice: the Tribunal Económico-Administrativo Central (the TEAC) has adopted it. For an internationally mobile client who settled a trust years ago in a common law jurisdiction, that shift matters, because it narrows the room to argue that a structure unknown to Spanish law produces no Spanish tax.

Settlor, trustee, beneficiary, protector. The settlor (or grantor) contributes the assets; the trustee holds legal title and administers them; the beneficiaries are entitled to benefit; a protector, where appointed, supervises the trustee. Spanish tax law gives none of these roles independent effect. It asks one question: who, in substance, owns and controls the assets.

Why Spain looks through a trust

The starting point is non-recognition. In the foundational ruling on the point, consulta V1991-08 of 30 October 2008, the DGT held that the trust is “una institución jurídica que no ha sido reconocida en España” (a legal institution that has not been recognised in Spain), a formula it has repeated in a long line of rulings since, among them V0817-18, V3394-19, V2033-22 and V0986-25. Because the figure does not exist for Spanish purposes, the trust is treated as transparent: the relations it creates abroad are read as taking place directly between the person who contributes the assets and those who ultimately receive them. The trustee, though holder of legal title, is treated as an administrator rather than an owner, and the protector’s powers carry no ownership. What governs is economic ownership and control, not the legal form of the structure.

What look-through means while the settlor is alive

While the settlor lives and retains ownership in substance, the assets remain, for Spanish purposes, the settlor’s own. Three consequences follow.

1. Constitution is usually not a taxable transfer. Contributing assets to the trust does not, in itself, move wealth for Spanish tax, because the settlor is treated as continuing to own them. This is clearest where the trust is revocable, or where the settlor is also trustee and beneficiary, as in consulta V0986-25 of 10 June 2025, in which the DGT confirmed that, while the settlor lives, the beneficiary includes nothing in respect of the trust in either wealth tax or the Solidarity Tax on Large Fortunes.
2. Income is attributed to the settlor as it arises. Income produced by the trust assets is taxed in the hands of the person treated as their owner, under the general rules of the Personal Income Tax Law (Ley 35/2006), in the year it falls due rather than when the trust later distributes it. The DGT has confirmed that a subsequent physical delivery of income already taxed does not give rise to fresh taxation (consulta V1966-22 of 15 September 2022; to similar effect, V1016-10 of 14 May 2010).
3. Wealth taxes fall on the settlor. If the settlor is resident in Spain, the trust assets form part of the settlor’s estate for wealth tax (Ley 19/1991) and for the Solidarity Tax on Large Fortunes, precisely because the trust does not exist to shelter them.

A distribution from the trust to the settlor changes nothing, because the assets are already treated as the settlor’s.

When Spain recognises a transfer: gifts and inheritance

The transfer of wealth is recognised not when the trust is created, but when ownership or control effectively passes. Two situations arise.

The first is a lifetime distribution to a beneficiary. A distribution made to a beneficiary during the settlor’s life is treated as a gift (inter vivos) made directly by the settlor to that beneficiary, subject to Inheritance and Gift Tax (Ley 29/1987, the LISD). The DGT reached this conclusion on a revocable British Virgin Islands trust whose funds financed a gift in consulta V0312-19 of 14 February 2019, and has applied the same analysis to distributions and to the unwinding of structures (consulta V3394-19 of 11 December 2019; consulta V0970-20 of 21 April 2020).

The second is the death of the settlor. On the settlor’s death the assets are treated as passing directly from settlor to beneficiaries by reason of death (mortis causa), a taxable event under the LISD. Where the beneficiary is resident in Spain, tax is due on an unlimited basis (obligación personal, article 6 LISD) on the worldwide assets received, with the inheritance and gift rules of the relevant autonomous community applying. The location of the assets and the residence of the heir determine which regional rules govern, which can be decisive given the wide variation in regional reductions and reliefs.

The 2025 turn: the TEAC adopts the doctrine

Until recently this was administrative doctrine, persuasive but open to challenge before the tribunals. In 2025 the TEAC adopted it. In its resolution of 22 January 2025 (RG 3418/2023), and again, more fully, in its resolution of 30 May 2025 (RG 5163/2024), the tribunal confirmed that, because the trust does not exist in Spanish law, the assets pass directly from settlor to beneficiary and the operation is subject to Inheritance and Gift Tax on the settlor’s death. In the May resolution a beneficiary argued the converse, that because the trust is not recognised it cannot give rise to a Spanish succession. The tribunal rejected the argument, holding that non-recognition is the very reason the assets are taxed as a direct mortis causa acquisition, not a defence against it. The practical effect is that the look-through analysis now carries the weight of binding administrative doctrine, and the “unknown structure, therefore no tax” position has become markedly weaker.

Where the analysis is easy to get wrong

The doctrine is settled in outline and unsettled in detail, and the detail is where exposure is created.

Not every receipt from a trust is a succession or a gift. Income, accumulated returns, periodic distributions and capital gains may require their own analysis under the Personal Income Tax Law rather than the LISD, and the characterisation drives both the rate and the person taxed.

Revocability and retained powers move the timing. Whether and when a transfer is recognised turns on the settlor’s retained control. A genuinely irrevocable trust under which control has passed can bring the transfer forward; a revocable one tends to defer it to the settlor’s death.

Reporting is a separate, sanctioned obligation. A Spanish resident connected to a trust may have to report the underlying assets on the Modelo 720, a point the DGT addressed for a trust beneficiary in consulta V3394-19, independently of when any tax is due, and the structure is in any event visible through international exchange of information.

The impatriate regime does not switch the analysis off. The interaction between the look-through doctrine and the special regime for inbound workers is live; the DGT considered whether a beneficiary’s taxation under that regime affected the outcome in consulta V0986-25, and the answer is fact-sensitive.

Double taxation is not relieved automatically. Because the home jurisdiction may tax the same event differently and at a different moment, and there is no trust-specific treaty relief, mismatches in timing and characterisation can leave the same value taxed twice unless they are planned for.

What it means for international clients

For a client who is resident in Spain, who holds Spanish assets, or whose beneficiaries are in Spain, a trust settled abroad is not a Spanish blind spot. It is read through to its economic substance: taxed on the settlor while the settlor lives, and taxed again as a gift or an inheritance when value passes. The recent confirmation by the TEAC has hardened that analysis, not softened it. The structures that hold up are those tested against Spanish substance before a distribution is made or a death occurs, and aligned with the treatment in the settlor’s and the beneficiaries’ home jurisdictions.

Lullius is a tax boutique in Palma de Mallorca advising international private clients on Spanish tax, private wealth and tax controversy. This note is general commentary, current to June 2026, and is not advice on any particular matter.