The taxation of Anglo-Saxon trusts in Spain is one of the most complex issues within international tax law. If you are a Spanish tax resident and you have an Anglo-Saxon trust abroad, or you are a beneficiary of one, you are likely facing significant tax uncertainty and potential risks.
An Anglo-Saxon trust is a common legal structure in Common Law jurisdictions and is widely used for estate planning and wealth succession purposes. However, Spain does not legally recognise trusts, which leads to major tax implications.
For this reason, the Spanish Tax Authorities (Hacienda) do not treat trusts as independent legal entities. Instead, they apply a tax transparency approach, which may directly affect your Personal Income Tax (IRPF), Inheritance and Gift Tax, Form 720, and Wealth Tax.
In this article, we clearly and practically explain how Anglo-Saxon trusts are taxed in Spain, the main risks involved, and what you should do to avoid problems with the Spanish Tax Agency.
The key issue: Spain does not recognise Anglo-Saxon trusts
Spain has not ratified the 1985 Hague Convention on the Law Applicable to Trusts.
As a result, from the perspective of Spanish law, a trust does not exist as an autonomous legal figure.
Furthermore, Spanish law does not accept the split of ownership between:
- the trustee (legal owner), and
- the beneficiary (economic owner).
Therefore, the Spanish General Directorate of Taxes (DGT) applies a doctrine of full tax transparency, ignoring the trust and attributing assets and income directly to the settlor or the beneficiary, depending on the circumstances.
This approach has been consistently confirmed through multiple binding tax rulings and is systematically applied by the Spanish Tax Inspection authorities.
Taxation of trusts under Spanish Inheritance and Gift Tax (ISD)
The taxation of a trust in Spain largely depends on how the Trust Deed is drafted and on the powers retained by the settlor.
Irrevocable trusts: taxation at the time of creation
When a trust is irrevocable and the beneficiary is clearly identified from the outset, the Spanish Tax Authorities consider that a gift occurs at the moment the trust is created.
As a result, the transfer of assets is deemed to take place at that time.
Main tax consequences:
- If the beneficiary was not a Spanish tax resident at the time and the assets were located abroad, the transaction is not subject to Spanish Gift Tax.
- For Spanish tax purposes, the assets are considered to belong to the beneficiary from that moment onwards.
Revocable or discretionary trusts: deferred taxation
By contrast, if the settlor retains the power to revoke the trust, or if the trustee has full discretionary powers, the Spanish Tax Authorities consider that no transfer of assets has taken place.
Therefore:
- The assets remain taxable in the hands of the settlor.
- Inheritance Tax will only be triggered:
- upon the death of the settlor, or
- when an actual distribution of assets occurs.
At that point, taxation will take place as an acquisition mortis causa.
Personal Income Tax (IRPF): attribution of trust income
One of the most sensitive issues is the taxation of income generated by trust assets.
Under the tax transparency principle, the trust itself is ignored.
Therefore, if the assets are attributed to the beneficiary, they must declare in their Personal Income Tax (IRPF) any dividends, interest or capital gains, even if no distributions have been received.
Additionally, if the trust holds shares in foreign companies generating passive income, the Controlled Foreign Company (CFC) rules may apply, forcing the direct attribution of that income to the Spanish tax resident.
In artificial or abusive structures, the Spanish Tax Authorities may apply the piercing the corporate veil doctrine, potentially leading to severe penalties and even criminal liability.
Form 720: obligation to declare foreign trusts
Form 720 is one of the main sources of tax risk for individuals with trusts abroad.
The Order HAP/72/2013 expressly refers to trusts and imposes a reporting obligation when the taxpayer qualifies as a beneficial owner, either as settlor or beneficiary.
Failure to file Form 720 may result in the assets being treated as unjustified capital gains, taxed at the highest marginal rates, together with:
- surcharges, and
- significant penalties.
Official information can be found on the Spanish Tax Agency website:
https://www.agenciatributaria.es
Trusts and Spanish Wealth Tax
If the taxpayer is considered the beneficial owner of the assets, they may also be subject to Spanish Wealth Tax.
This may arise:
- under personal tax liability, if the individual is a Spanish tax resident, or
- under real tax liability, if the assets are located in Spain.
Frequently Asked Questions about trusts and taxation in Spain
Is it legal to have a trust while being a Spanish tax resident?
Yes. Having a trust is legal. However, its tax treatment is highly complex and must be analysed on a case-by-case basis.
Do Spanish tax residents have to declare trusts?
Yes. In many cases, trusts must be declared, particularly through Form 720.
Are trust beneficiaries taxed under Spanish Personal Income Tax?
Yes. If the assets or income are attributed to them, beneficiaries must pay tax even if no distributions are received.
When is an irrevocable trust taxed in Spain?
Typically, at the time of its creation, as it is treated as a gift.
Resitax: experts in the taxation of Anglo-Saxon trusts
Having an Anglo-Saxon trust while being a Spanish tax resident is not illegal.
However, remaining in a legal and tax grey area without proper advice may lead to assessments, penalties and serious tax issues.
Spain’s lack of recognition of trusts requires a detailed analysis of the Trust Deed, the letters of wishes, and the tax position of both the settlor and the beneficiary.
At Resitax, as a tax advisory firm specialised in international taxation, we advise Spanish tax residents with foreign trusts and complex wealth structures.
If you would like us to review your situation confidentially, please contact us directly.
