The taxation of foreign Trusts, particularly those established in the United States and the United Kingdom, is one of the most complex areas of international tax planning when the beneficiary becomes tax resident in Spain under the Special Expatriate Regime (commonly known as the Beckham Law).
While this regime allows for the exemption of certain foreign-source income, assuming that all distributions from a foreign Trust are automatically tax-free is a common and serious mistake. In some cases, taxation in Spain can be substantial and may even fall outside the scope of personal income tax, triggering Gift and Inheritance Tax instead.
The core legal issue: Trusts under Spanish law
Spain as a Civil Law jurisdiction
Spain is a Civil Law jurisdiction and does not recognise the Trust as a legal figure within its domestic legal system, except in very limited regional contexts. As a result, the Spanish General Directorate of Taxes (DGT) must carry out a legal and tax recharacterisation of any amounts received by a Spanish tax resident from a foreign Trust.
Why tax classification is critical under the Beckham Law
For taxpayers applying the Beckham Law, the tax classification of Trust distributions is decisive because:
- Foreign-source income is generally exempt from Spanish taxation.
- Employment income is always taxable, regardless of where it arises.
- Gift and Inheritance Tax (GIT) is not covered by the Beckham Law.
How does the Spanish Tax Authority classify distributions from a foreign Trust?
Based on administrative practice and binding tax rulings, three main tax scenarios can be identified, each with very different tax consequences.
Scenario A: Investment income
Transparent Trusts (Bare Trusts and Fixed Interest Trusts)
Nature of the income
This scenario applies when the Trust is fiscally transparent and the beneficiary holds a direct, unconditional and vested economic right over the Trust assets or their income.
In such cases, distributions may be classified as dividends or interest income.
Tax impact
Ordinary tax regime (standard Spanish tax resident)
- Taxed under Personal Income Tax, savings tax base.
- Progressive rates from 19% to 28%.
- Taxable on worldwide income.
Beckham Law regime
- Foreign-source income not derived from employment.
- Exempt from Spanish Personal Income Tax.
- Effective tax rate: 0%.
Conclusion – Scenario A
This is the most favourable scenario and the target of any efficient tax planning strategy. However, the Spanish Tax Authority applies this classification restrictively and usually rejects it where the Trustee retains discretionary powers.
Scenario B: Employment income
Employee Benefit Trusts, deferred bonuses and stock options
Nature of the income
This is the most common classification where the Trust is linked to an employment or professional relationship, such as incentive plans, deferred compensation schemes or equity-based remuneration.
Tax impact
Ordinary tax regime (standard Spanish tax resident)
- Taxed under Personal Income Tax, general tax base.
- Progressive rates up to 47%–50%, depending on the region.
- No cap on taxable base.
Beckham Law regime
- Taxed under the special regime.
- Flat rate of 24% up to €600,000.
- 47% on amounts exceeding €600,000.
- Taxable even if the income is foreign-source.
Conclusion – Scenario B
While the Beckham Law may offer a limited advantage for high earners, the full exemption for foreign-source income is lost.
Scenario C: Capital gain obtained free of charge (gift)
Discretionary Trusts without vested economic rights
Nature of the income
Where the beneficiary has no vested right and distributions depend entirely on the Trustee’s discretion, the Spanish Tax Authority tends to classify the amount received not as income, but as a gift.
Tax impact
Ordinary tax regime (standard Spanish tax resident)
- Subject to Gift and Inheritance Tax.
- Tax rates between 7.65% and 34%, plus potential multipliers.
- Additional charges may apply due to lack of kinship or pre-existing wealth.
- Regional tax reliefs apply only if real family relationships can be proven.
Beckham Law regime
- The Beckham Law does not apply.
- Taxation under Gift and Inheritance Tax due to personal tax residence in Spain.
- Effective tax burden may exceed 40% of the amount received.
Conclusion – Scenario C
This is the most unfavourable scenario and represents a critical tax risk that can completely eliminate any benefit of the Beckham Law.
Comparative table: Tax impact
Ordinary tax regime vs. Beckham Law
| Tax classification | Ordinary tax regime | Beckham Law regime | Tax impact |
|---|---|---|---|
| Investment income (transparent Trust) | PIT savings base, 19%–28%, worldwide income | Exempt, effective rate 0% | Maximum advantage |
| Employment income (EBT / bonuses) | PIT general base, up to 47%–50% | 24% up to €600,000, 47% excess | Moderate advantage |
| Gift (discretionary Trust) | Gift & Inheritance Tax 7.65%–34% + multipliers | Gift & Inheritance Tax, no Beckham protection, risk >40% | Critical risk |
| Wealth / Solidarity Tax | Worldwide net wealth | Only Spanish-situated assets | Asset protection advantage |
Wealth Tax and Solidarity Tax under the Beckham Law
One of the key advantages of the expatriate regime is that Spanish Wealth Tax and the Solidarity Tax on Large Fortunes only apply to assets located in Spain.
As a result, economic rights derived from foreign Trusts holding assets outside Spain should not be included in the taxable base of these taxes, regardless of the Trust structure.
Conclusion: advance planning is essential
Foreign Trusts and the Beckham Law are not incompatible, but their interaction is delicate. Assuming that all foreign income is exempt is a serious mistake that can lead to severe tax consequences, particularly under Gift and Inheritance Tax.
A thorough review of the Trust Deed before becoming tax resident in Spain is essential to determine whether the structure should be maintained, amended or even unwound prior to relocation.
Specialist advice on Foreign Trusts and the Beckham Law in Mallorca
At Resitax, we are lawyers and tax advisors specialised in international taxation, wealth planning and the Beckham Law for residents and expatriates in Mallorca.
If you are a beneficiary of a foreign Trust or are considering relocating to Spain, obtaining specialist advice in advance can prevent costly and irreversible tax errors.
Contact our team:
https://resitax.eu/en/contact/
Meet our legal and tax advisors in Mallorca:
https://resitax.eu/en/business-law-mallorca/
