Family business exemption in Spain and the 95% relief

What is Spain's family business exemption? The short answer

Spain's family business exemption takes your shares in a company with a genuine business out of the wealth tax if you hold at least 5% (or 20% with your family) and you or a relative runs it, earning more than half of their earned income from that role. When the shares are inherited or gifted to children, the state relief is 95%.

This guide covers the state rules in force in 2026 for Spanish tax residents, with a worked example. The Basque Country and Navarre have their own (foral) tax systems.

What does article 4.Ocho of the wealth tax law exempt?

Spain's wealth tax (Impuesto sobre el Patrimonio) has two exemptions in article 4.Ocho of Law 19/1991:

1. A business you run as an individual, if you run it on a regular, personal and direct basis and it is your main source of income: according to article 3 of Royal Decree 1704/1999, at least 50% of your taxable base for IRPF (personal income tax).
2. Shares in companies, held in full ownership, bare ownership or lifetime usufruct, listed or not: the usual family company case, covered here.

The exemption also applies to the solidarity tax on large fortunes (Impuesto de Grandes Fortunas): article 3 of Law 38/2022 exempts whatever is exempt from wealth tax (more in our solidarity tax guide).

The tax accrues on 31 December (article 29) and the conditions are checked on that date (article 8 of the royal decree). You still report the shares and their exempt part in your return.

What conditions must shares in a company meet?

Genuine activity: the 90-day test

The company counts as an asset-holding company, and loses the exemption, if for more than 90 days of the financial year more than half of its assets are securities or more than half are not used in a business activity, according to its accounts.

Some items are left out of that test: securities held to meet legal obligations, receivables that arise from the business, and stakes of at least 5% of the voting rights managed with the company's own staff and resources. Nor do assets count if their purchase price does not exceed the undistributed profits from business activities of the current year and the previous 10 years.

What counts as a business activity follows the income tax law: letting property only qualifies if at least one person is employed on a full-time employment contract to manage it (article 27.2). And under article 6 of the royal decree, assets for the family's personal use, or made available to related parties below market price, are never business assets.

5% on your own or 20% with your family

The family group is your spouse, ascendants, descendants and second-degree collateral relatives (siblings and siblings-in-law), by blood, marriage or adoption. The two routes differ in one decisive way:

• If the group holds at least 20%, it is enough for one person in the group to run the company and earn more than 50% of their income from it: everyone in the group is entitled to the exemption.
• If the group holds less than 20%, only your individual 5% stake works, and then you must run the company yourself.

The DGT (Dirección General de Tributos, whose binding rulings guide the tax agency) applied this in ruling V2390-23: a shareholder with 11.5% and her husband with 3.5% hold 15% between them. He headed the sales department, but as the group falls short of 20%, she does not get the exemption. The ruling cites Supreme Court judgment 1776/2016 of 14 July, which backs this view.

Management functions and the 50% rule

Article 5 of Royal Decree 1704/1999 treats as management functions the roles of chair, managing director, general manager, director (administrador), head of department and board member, if they involve real involvement in decisions, backed by a contract or appointment. In ruling V2390-23, the DGT only counts pay received after the contract recorded the role.

The 50% test works like this:

• Numerator: what you are paid for managing that company.
• Denominator: your earned, business and professional income. Dividends, interest and rents are left out, because the law does not mention them, and so is a sole-trader business that is already exempt.
• Several companies: the percentage is worked out separately for each one, without adding what you earn from the others.

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How much is exempt? The proportional exemption

Meeting the conditions does not exempt the whole value, only the ratio between the assets the business needs, minus its debts, and the company's net equity.

The shares are valued under article 16.Uno: at the book value per share of the last approved balance sheet if it was audited with a clean opinion; otherwise, at the highest of nominal value, book value, and average profits of the last three financial years capitalised at 20%.

Note the wording: the undistributed profits rule decides whether the company is an asset-holder, but the paragraph on the exempt part only mentions assets the business needs. Large cash balances or a fund portfolio may not make the company an asset-holder and still reduce the exempt part. Andalusia and Madrid expressly extend their inheritance and gift tax relief to those assets.

With a holding company, the same rules are applied to each subsidiary to value the parent; see our family holding company guide.

How does the 95% inheritance and gift tax relief work?

Article 20 of Law 29/1987 reduces by 95% the taxable base of inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones, ISD) for the value of a sole-trader business, a professional practice or shares that qualify for the wealth tax exemption. There are two versions with different conditions.

On inheritance (article 20.2.c)

• Who: the spouse, descendants or adopted children. If there are no descendants, also ascendants, adoptive parents and collateral relatives up to the third degree. The surviving spouse always qualifies.
• How much: 95% of the value of the shares in their exempt part.
• Holding period: the inheritance is kept for the 10 years after the death, unless the heir dies sooner, with no transactions or corporate operations that substantially reduce its value.
• If not met: you pay the tax that was not paid plus late-payment interest.

The DGT's Resolution 2/1999 settles three points: the conditions are checked on the date of death; the 50% rule uses income from 1 January to that date; and what must be kept is the value inherited, without requiring the heir to keep the wealth tax exemption. A merger or share exchange under the special tax-neutral regime does not cost the relief if the value is kept.

On a lifetime gift (article 20.6)

• Who receives: the spouse, descendants or adopted children.
• Donor: 65 or over, or with a permanent absolute or severe disability.
• Management: if the donor managed the company, they stop performing and being paid for those functions from the gift. Simply sitting on the board of directors does not count as management.
• Donee: keeps what they receive and their right to the wealth tax exemption for the 10 years after the deed, unless they die sooner, and must not substantially reduce its value.

For a gift, the 50% rule uses income from the last income tax period before the gift, according to the same resolution. For other assets, see our guide on gifts from parents to children.

What changes in your region

Spain's autonomous communities (regions) can improve the state relief or replace it with their own. According to the Ministry of Finance's Tributación autonómica. Medidas 2026 (updated 23 September 2026), for shareholdings:

In Madrid, Law 3/2026 creates its own reliefs, which cannot be combined with the state one: you choose in the tax return. The relative who manages the company need not hold shares, and the 50% rule can be met with the current or the previous year. The gift conditions summarised by the Ministry do not include the age of 65 or the donor stepping down. Which region's rules apply is explained in our inheritance tax by region guide.

What about the donor's income tax? Article 33.3.c

Gifting shares worth more than they cost normally creates a capital gain for the donor. Article 33.3.c of the income tax law says there is none on gifts covered by article 20.6, and the child takes over the parent's acquisition value and date (article 36): the gain is deferred until the child sells.

Two points that are rarely explained:

1. The state conditions decide. According to ruling V3261-23, meeting the state article 20.6 conditions is enough, whether or not the child applies that reduction; regional conditions are irrelevant.
2. Only the business part. The TEAC (Tribunal Económico-Administrativo Central, the central tax appeals board), in its decision of 29 May 2023 (00/01501/2020, repeated on 18 December 2023), limits the deferral to the gain matching the percentage of business assets. The rest is taxed in the parent's income tax.

On inheritance there is no gain for the deceased (article 33.3.b) and the heirs take the value declared for inheritance tax as their acquisition value. That is the big difference between gifting now and waiting.

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Worked example: a Sabadell engineering company passing to two children

Jordi is 67, lives in Sabadell (Barcelona) and owns 90% of a machining company he founded in 1992, with an acquisition value of €540,000. His children, also resident in Catalonia, own 5% each: Laia, 42, has been general manager under contract since 2019 and has no other earned income; Marc, 39, is an architect working elsewhere. Jordi is the company's director (administrador) and is paid €150,000 a year, his only earned income, plus dividends and rent from two flats he owns.

The last approved balance sheet, audited with a clean opinion:

We assume the market value equals that book value of €10,000,000; a real transaction needs a valuation.

Step 1. Genuine activity? Non-business assets add up to €2,000,000 out of €13,000,000 of assets (15.4%) and securities to €1,500,000 (11.5%). If the ratio holds all year, the company is not an asset-holding company.

Step 2. Stake and management? The family group holds 100%, so one person managing is enough. Jordi and Laia both do, each earning more than 50% of their earned income from it; Jordi's dividends and rents do not count.

Step 3. Which part is exempt? (11,000,000 − 3,000,000) / 10,000,000 = 80%. Jordi's shares are worth €9,000,000: €7,200,000 is exempt and the remaining €1,800,000 is taxed in his 2026 wealth tax, filed in 2027 (how it is taxed in Catalonia: see wealth tax by region).

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Step 4. Option A: gift in 2027. Jordi is over 65 and meets the 50% rule in 2026. He gifts 45% to each child and gives up his role and pay on the day of the deed. Each child receives €4,500,000: the exempt part is €3,600,000 and the 95% relief is €3,420,000. That leaves a taxable base of €1,080,000 each, before other reductions and the Catalan rates (in Catalonia, also 95%, with a 5-year holding period).

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For income tax, Jordi's gain would be 9,000,000 − 540,000 = €8,460,000. Under the TEAC's view, 80% (€6,768,000) is deferred and €1,692,000 is taxed. With the 2026 savings income scale (articles 66 and 76, from 19% to 30%) and no other savings income, the tax would be about €489,480: €71,880 on the first €300,000 and 30% of the remaining €1,392,000, €417,600.

The gift binds the children for 10 years: if Laia stopped managing and nobody in the family took over, Marc would lose his right to the exemption and the gift would no longer meet article 20.6.

Step 5. Option B: inheritance. If Jordi keeps the shares, the relief per child is the same, €3,420,000, if the conditions are met on the day of death; even if Jordi retires earlier, it is enough that Laia keeps managing. Jordi pays no income tax and the children take the inheritance value, but nobody controls when the handover happens, or at what value.

Step 6. The 20% non-business part. Moving the portfolio or the flat out of the company changes the ratio, but has its own tax cost and only holds up with valid, documented business reasons. If its only effect is a tax one, the tax authorities can apply the general anti-avoidance rule (conflicto en la aplicación de la norma) or, if it is a sham, the rules on simulation, with penalties.

Common mistakes that cost the exemption

• Counting the family without reaching 20%. With 15% between spouses, only the individual route works and the shareholder must manage the company (V2390-23).
• Managing without a contract or appointment. The DGT only counts pay from the date the role is on paper.
• Missing the 50% because of other income. Professional fees or a salary from another company can push management pay below half.
• Holding shares through a holding company without checking it. The exemption is for direct shareholdings.
• Building up cash and investments. They shrink the exempt part in all three taxes.
• Letting property without a full-time employee. It counts as non-business.
• Gifting and still being paid to manage. The donor gives up the role and the pay from the gift.
• Selling or diluting too early. Breaking the holding period means repaying the relief with late-payment interest.

How Melso helps

Melso Private provides lawful tax planning for people with wealth from €1 million, including business families who want to keep the family business exemption and plan the next generation. AI reads your deeds, balance sheets and returns and models scenarios; tax advisers review them and stand behind the measures, and you approve each one before it is applied or before the agreed returns, such as wealth tax and income tax, are filed. We work alongside your notary, and the fee proposal is fixed and in writing, never a percentage of what you save. Request a conversation at melso.ai/en/private-wealth: the first one, 45 minutes long, is free of charge.

This article is for information only and does not replace professional advice for your case. Last reviewed: 18 October 2026.