The taxation of Anglo-Saxon trusts in Spain is one of the most complex issues in international taxation. If you are a tax resident in Spain and hold an Anglo-Saxon trust abroad, or are a beneficiary of one, you are very likely to face significant tax questions and risks.
The Anglo-Saxon trust is a common legal structure in Anglo-Saxon law and is primarily used for estate and inheritance planning. However, Spain does not legally recognize trusts, which has significant tax implications.
For this reason, the Spanish Tax Agency does not treat it as an independent entity, but rather as a transparent structure that can directly affect your Personal Income Tax (IRPF), Inheritance and Gift Tax, Form 720 (Tax Return), and Wealth Tax.
In this article we explain, in a clear and practical way, how Anglo-Saxon trusts are taxed in Spain, what risks exist and what you should do to avoid problems with the Tax Agency.
The key problem: Spain does not recognize Anglo-Saxon trusts
Spain has not ratified the 1985 Hague Convention on the Recognition of Trusts.
Consequently, from the perspective of Spanish law, the trust does not exist as an independent legal entity.
Furthermore, Spanish law does not allow the division of ownership between:
- the trustee (legal owner), and
- the beneficiary (economic beneficiary).
Therefore, the Directorate General of Taxes (DGT) applies a doctrine of absolute fiscal transparency, ignoring the trust and considering that the assets and income belong directly to the settlor or the beneficiary, as the case may be.
This criterion has been reiterated in numerous binding consultations of the DGT, and is the one that the Tax Inspection systematically applies.
Taxation of trusts under Inheritance and Gift Tax (ISD)
The taxation of a trust in Spain depends, to a large extent, on how the Trust Deed is drafted and the powers retained by the settlor.
Irrevocable trusts: donation at the time of creation
When a trust is irrevocable and the beneficiary is clearly identified from the outset, the tax authorities consider that a donation occurs at the time the trust is created.
Consequently, the transfer of assets is deemed to have taken place at that moment.
Main tax effects:
- If the beneficiary was not a tax resident in Spain at that time and the assets were located abroad, the transaction is not subject to Spanish Gift Tax.
- From a tax perspective, the assets are considered to belong to the beneficiary from that moment on.
Revocable or discretionary trusts: deferred taxation
However, if the settlor reserves the power to revoke the trust or the trustee has full discretion to decide whether or not to distribute the assets, the tax authorities consider that there is no transfer of assets.
Therefore:
- The assets remain fiscally owned by the settlor.
- He Inheritance Tax only the following will be accrued:
- upon the death of the settlor, or
- when an effective distribution of goods occurs.
At that time, taxation will be carried out as an acquisition mortis causa.
Personal income tax and trusts: imputation of income to the beneficiary
One of the biggest points of contention is the taxation of income generated by the trust's assets.
By applying the principle of tax transparency, the Tax Agency ignores the existence of the trust.
Therefore, if the assets are considered to belong to the beneficiary, the beneficiary must pay income tax on dividends, interest, or capital gains, even if they have not received any distribution.
Furthermore, if the trust participates in foreign companies that generate passive income , the International Tax Transparency regime can be applied , directly imputing that income to the general taxable base of the Personal Income Tax.
In artificial structures or those with fraudulent purposes, the Tax Inspection can apply the doctrine of piercing the corporate veil, with sanctioning and even criminal consequences.
Form 720: Obligation to declare trusts abroad
Form 720 is one of the main sources of tax risk for those who have a trust outside of Spain.
In fact, Order HAP/72/2013 expressly mentions trusts and requires reporting on them when the taxpayer has the status of beneficial owner, either as settlor or beneficiary.
For this reason, failure to file Form 720 may cause the Tax Agency to consider the assets as an unjustified capital gain, including them in the Personal Income Tax (IRPF) with:
- maximum marginal rates,
- surcharges, and
- very high penalties.
You can consult the official information about this obligation directly at the Tax Agency:
https://www.agenciatributaria.es
Trusts and Wealth Tax
If the taxpayer is considered the beneficial owner of the assets, they will also be subject to Wealth Tax.
This can happen:
- due to personal obligation, if you are a tax resident in Spain, or
- by real obligation, if the assets are located in Spanish territory.
Frequently asked questions about trusts and taxation in Spain
Is it legal to have a trust if you are a tax resident in Spain?
Yes. Having a trust is not illegal. However, its taxation is complex and must be analyzed on a case-by-case basis.
Does a tax resident in Spain have to declare a trust?
Yes. In many cases there is an obligation to declare the trust, especially through Form 720.
Do the beneficiaries of a trust pay income tax?
Yes. If the tax authorities consider that the assets or income belong to them, they must pay taxes even if they have not received any distributions.
When does an irrevocable trust pay taxes?
Normally, at the time of its constitution, it is understood that there is a donation.
Resitail, experts in trust taxation
Having an Anglo-Saxon trust while being a tax resident in Spain is not illegal.
However, operating in a legal and tax limbo without proper analysis can lead to tax audits, penalties, and serious problems with the Spanish Tax Agency.
The lack of recognition of the trust in Spain requires an exhaustive analysis of the Trust Deed, the letters of wishes and the tax situation of the settlor and the beneficiary.
At Resitax, as a tax consultancy specializing in international taxation, we analyze foreign trusts and complex asset structures for residents in Spain.
And if you would like us to review your specific situation confidentially, please contact us directly.