What expatriates with trusts in the UK or US need to know about Spain’s tax treatment of foreign trusts
In a landmark binding tax ruling (Consulta Vinculante V2324-23) issued by Spain’s General Directorate of Taxes (DGT) on August 30, 2023, new light has been shed on the tax implications for Spanish tax residents who are beneficiaries of foreign trusts.
This case involved a Spanish resident individual who was named as a discretionary beneficiary of a foreign trust. The trust generated income from abroad, and the beneficiary asked the DGT how this should be treated for Spanish tax purposes, particularly in the context of Personal Income Tax (IRPF), Wealth Tax (IP) and Inheritance and Gift Tax (ISD).
The response from the Spanish tax authorities provides critical guidance for UK and US nationals living in Spain, many of whom are settlors or beneficiaries of trust structures established in common law jurisdictions.
Key Takeaways from the Ruling
- Trusts are not recognised as separate legal entities under Spanish tax law.
Spain does not recognise the legal concept of a trust in the same way as common law jurisdictions. Therefore, income generated by the trust is attributed directly to the beneficiary if the beneficiary holds a current and enforceable right to the income (derecho cierto a la percepción). In discretionary trusts, however, taxation may depend on actual distribution. - Income distributed by the trust is taxable as general income in IRPF.
In the case analysed, the DGT held that trust income received by the beneficiary must be reported as income from movable capital, taxed at progressive savings rates under Spanish IRPF. This means trust distributions are not tax-exempt nor treated as gifts, even if made under trustee discretion. - No Wealth Tax on the underlying trust assets.
Where the beneficiary does not have current ownership rights (derecho de propiedad actual) over the trust’s assets, these will not be included in the Wealth Tax base. This is a relevant clarification for UK or US settlors concerned about wealth aggregation. - Inheritance and Gift Tax applies only upon transmission of assets.
The DGT confirms that Spanish Inheritance and Gift Tax (ISD) only applies if the beneficiary acquires assets from the trust in the form of a gift or inheritance. Mere income distributions are not subject to ISD, but to IRPF as explained above. - Transparency, not taxation of the trust itself.
Spain applies a principle of tax transparency: the trust is “fiscally invisible,” and only the income or gains received by the beneficiary are taxed, provided sufficient control or access to those assets can be proven.
What Does This Mean for UK and US Nationals Living in Spain?
This ruling is of paramount importance for British and American expatriates in Spain who are beneficiaries or settlors of trusts. Misunderstanding the Spanish tax treatment of trusts can lead to non-compliance, double taxation, or unexpected penalties.
At Lullius Partners, we regularly advise international families on:
- The correct tax reporting of trust distributions in IRPF
- Cross-border estate planning involving UK or US trusts
- Tax treatment of revocable and irrevocable trusts
- Optimising Wealth Tax exposure through asset structuring
- Spanish tax implications for grantors, trustees, and beneficiaries
Trusts and Tax Residency: Avoid Common Pitfalls
For expats in Mallorca, Madrid or Barcelona, trust structures established abroad can become a compliance minefield when moving to Spain. Spanish tax authorities require full transparency regarding income sources, rights over the trust assets, and the nature of distributions.
Failure to disclose foreign trust income properly may lead to penalties and presumption of donations, potentially triggering IGT liabilities at punitive rates.
How We Help
Lullius Partners is a leading boutique tax law firm based in Mallorca, Spain, with deep expertise in international private wealth and tax structuring. We work with UK and US expats, international families, and trustees to ensure compliant, strategic and efficient cross-border wealth management.
If you are a beneficiary of a foreign trust and reside in Spain, we can provide legal and tax certainty—before the Spanish tax office comes asking.
