# Family business exemption in Spain and the 95% relief

URL: https://melso.ai/en/blog/family-business-exemption-spain
Published: 2026-10-18 · Updated: 2026-10-18

Spain's family business exemption in 2026: wealth tax conditions (5% or 20%, management and over 50% of earned income), the proportional exemption, 95% inheritance and gift tax relief, the donor's income tax, regional rules and a worked example.

## 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%.

> [!RESUMEN]
> - Wealth tax conditions are checked on 31 December: your position on 31 December 2026 is what counts in the return you will file in 2027.
> - Only the part of the value that matches the assets the business needs is exempt; idle cash, investment portfolios and flats let without an employee shrink it.
> - If your family group holds less than 20%, you must run the company yourself: your spouse doing it is not enough (ruling V2390-23).
> - When the shares pass to a spouse or children by inheritance or gift, state law reduces 95% of that exempt part if it is kept for 10 years; Catalonia and Madrid require 5 years and Andalusia 3.
> - If you gift the shares meeting the state conditions, you pay no income tax on the business part and your children keep your acquisition value and date.

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](https://www.boe.es/buscar/act.php?id=BOE-A-1991-14392#a4):

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](https://www.boe.es/buscar/act.php?id=BOE-A-1999-21571#a3), 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](https://www.boe.es/buscar/act.php?id=BOE-A-2022-22684#a3) exempts whatever is exempt from wealth tax (more in our [solidarity tax guide](/en/blog/spain-solidarity-tax-large-fortunes)).

The tax accrues on 31 December ([article 29](https://www.boe.es/buscar/act.php?id=BOE-A-1991-14392#a29)) and the conditions are checked on that date ([article 8 of the royal decree](https://www.boe.es/buscar/act.php?id=BOE-A-1999-21571#a8)). You still report the shares and their exempt part in your return.

## What conditions must shares in a company meet?

| Condition | What it requires | Where it is |
|---|---|---|
| Genuine business activity | The company must not be managing a portfolio of assets: no more than half its assets in securities or in non-business assets for more than 90 days of the financial year | Art. 4.Ocho.Dos.a of Law 19/1991 |
| Minimum stake | At least 5% on your own, or 20% with your spouse, ascendants, descendants or second-degree collateral relatives | Art. 4.Ocho.Dos.b |
| Paid management role | Performing management functions and earning from them more than 50% of your earned, business and professional income | Art. 4.Ocho.Dos.c and art. 5 of RD 1704/1999 |
| Direct ownership | You must own the shares directly | Art. 4 of RD 1704/1999 |
| Date | Everything is checked on 31 December | Art. 29 of the law and art. 8 of the royal decree |

### 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](https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764#a27)). And under [article 6 of the royal decree](https://www.boe.es/buscar/act.php?id=BOE-A-1999-21571#a6), 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](https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=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](https://www.boe.es/buscar/act.php?id=BOE-A-1999-21571#a5) 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.

![Without a genuine business activity there is no exemption. If the family group holds 20%, one relative managing the company and earning over 50% of their income from it is enough. If not, you need 5% and must manage it yourself. Only the business part is exempt.](https://storage.googleapis.com/albert-489117-melso-blog-media/diagrams/en/empresa-familiar-exencion-patrimonio/1-decision-62ee77a366.png?w=1600&h=2256&m=1&mw=1080&mh=3936 "Are your shares in the family company exempt?")

> [!IMPORTANTE]
> The conditions are checked on 31 December, but the 50% rule looks at income for the whole year: an appointment signed in November does not fix a year without enough management pay. For the 2026 return, review contracts and payroll before the year ends.

## 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](https://www.boe.es/buscar/act.php?id=BOE-A-1991-14392#a16): 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](/en/blog/family-holding-company-spain).

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

[Article 20 of Law 29/1987](https://www.boe.es/buscar/act.php?id=BOE-A-1987-28141#a20) 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](https://www.boe.es/buscar/act.php?id=BOE-A-1999-8180) 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](/en/blog/gift-tax-spain).

### 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](https://www.hacienda.gob.es/sgfal/financiacionterritorial/autonomica/capitulo-iv-tributacion-autonomica-2026.pdf) (updated 23 September 2026), for shareholdings:

| Region | Inheritance | Gift | Holding period |
|---|---|---|---|
| State rules | 95% | 95% (donor aged 65 or over) | 10 years |
| Catalonia | 95%, also for ascendants and collateral relatives up to the third degree | 95% | 5 years |
| Andalusia | 99%, with no 50% pay requirement | 99% | 3 years |
| Madrid region (from 1 July 2026) | Own 99% relief, family group up to the fourth degree | Own 99% relief | 5 years |

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](/en/blog/inheritance-tax-spain-by-region).

## 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](https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764#a33) 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](https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764#a36)): the gain is deferred until the child sells.

Two points that are rarely explained:

1. **The state conditions decide.** According to [ruling V3261-23](https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=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](https://serviciostelematicosext.hacienda.gob.es/TEAC/DYCTEA/criterio.aspx?id=00/01501/2020/00/0/1) (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](https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764#a33)) and the heirs take the value declared for inheritance tax as their acquisition value. That is the big difference between gifting now and waiting.

![Gift and inheritance carry the same 95% state relief on the exempt part. The gift needs a donor aged 65 or over who stops managing, and 10 years keeping the exemption; the child keeps the parent's cost. On inheritance there is no gain and the heir takes the declared value.](https://storage.googleapis.com/albert-489117-melso-blog-media/diagrams/en/empresa-familiar-exencion-patrimonio/2-compare-a1fa0ff470.png?w=1600&h=1526&m=1&mw=1080&mh=2985 "State rules. Catalonia, Andalusia and Madrid change percentages and periods.")

## 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:

| Item | Amount |
|---|---|
| Assets the business needs (plant, machinery, stock, receivables) | €11,000,000 |
| Investment fund portfolio | €1,500,000 |
| Flat let to a third party, no employee | €500,000 |
| Total assets | €13,000,000 |
| Business debts | €3,000,000 |
| Net equity | €10,000,000 |

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](/en/blog/wealth-tax-spain-by-region)).

![Jordi's shares are worth 9,000,000 euros. The part matching non-business assets, 20%, is 1,800,000 euros and is taxed. 7,200,000 euros is exempt.](https://storage.googleapis.com/albert-489117-melso-blog-media/diagrams/en/empresa-familiar-exencion-patrimonio/3-breakdown-04df41d9fa.png?w=1600&h=740&m=1&mw=1080&mh=1365 "Illustrative example. Ratio: (11,000,000 − 3,000,000) / 10,000,000 = 80%.")

**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).

![Each child receives shares worth 4,500,000 euros. The 95% relief applies to the exempt part, 3,600,000 euros, and comes to 3,420,000 euros. A base of 1,080,000 euros remains.](https://storage.googleapis.com/albert-489117-melso-blog-media/diagrams/en/empresa-familiar-exencion-patrimonio/4-breakdown-724d2df8b5.png?w=1600&h=782&m=1&mw=1080&mh=1302 "Illustrative example before other reductions and regional rates.")

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](https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764#a66) and [76](https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764#a76), 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.

> [!MELSO]
> Choosing between gifting now and waiting, and what to do with non-business assets, depends on balance sheets and income that change every year. At [Melso Private](/en/private-wealth#contacto), tax advisers review with you scenarios modelled on your own documents and show you each measure with its legal basis, risk and cost before anything is applied.

## 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.

> [!CONSEJO]
> Each year, keep with your wealth tax return the contract of whoever manages the company, their income and the calculation of the business part with the balance sheet used. If the tax agency reviews the inheritance or gift, that is what you will need to prove.

## 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](https://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.

## Frequently asked questions

### What is the family business exemption in Spain?

It is the rule in article 4.Ocho of Law 19/1991 that takes the assets of your own business, and shares in companies with a genuine business activity, out of Spain's wealth tax when ownership and management conditions are met. The same shares are exempt from the solidarity tax on large fortunes and, when they pass to a spouse or children by inheritance or gift, they qualify for a 95% state reduction in inheritance and gift tax.

### What are the conditions for the wealth tax family business exemption?

Three, checked on 31 December. The company must not be an asset-holding company: no more than half its assets in securities or in assets not used in the business for more than 90 days of the year. Your direct stake must be at least 5%, or 20% together with your spouse, ascendants, descendants and siblings or siblings-in-law. And you, or a relative under the 20% route, must manage the company and earn more than 50% of their earned and business income from that role.

### What counts as management functions for the family business exemption?

Royal Decree 1704/1999 lists chair, managing director, general manager, director (administrador), head of department and board member, as long as the role involves real involvement in the company's decisions. It must be backed by a contract or a formal appointment. The DGT stresses that the list is only a guide: what counts is what you actually do, and only pay received after the contract records the role is taken into account.

### How is the 50% management pay test calculated?

Divide what you are paid for managing the company by your total earned, business and professional income for the year. The result must be above 50%. Dividends, interest and rental income are left out of the calculation, and so is income from a sole-trader business that is already exempt. If you manage several companies, the percentage is worked out separately for each one, without adding what you earn from the others.

### Is the whole shareholding exempt or only part of it?

Only the part that matches the business assets, minus the business debts, divided by the company's net equity. If a company with €10,000,000 of net equity holds €2,000,000 in investment funds and a flat let without an employee, the exemption covers 80% of the value of the shares and the remaining 20% is subject to wealth tax.

### What is the 95% family business relief in Spanish inheritance tax?

It is a 95% reduction in the taxable base of inheritance and gift tax on the value of a business or of shares that qualify for the wealth tax exemption, when they pass to the spouse, descendants or adopted children (articles 20.2.c and 20.6 of Law 29/1987). Many regions improve it: Andalusia allows 99% with a 3-year holding period, and Madrid has had its own 99% relief since 1 July 2026.

### What are the conditions for gifting a family company to your children in Spain?

Under state law, the donor must be 65 or over, or have a recognised permanent absolute or severe disability, and must stop performing and being paid for management functions from the date of the gift; simply sitting on the board does not count as management. The children must keep what they receive, and their right to the wealth tax exemption, for 10 years from the deed. Check your region's rules too, which can change the percentage and the period.

### How long must heirs keep an inherited family business?

Under state law, 10 years from the death, unless the heir dies sooner. According to the DGT's Resolution 2/1999, what must be kept is the value of the inheritance, not exactly the same shares and not the heir's own wealth tax exemption. A merger or share exchange does not cost the relief if the value is kept. Several regions shorten the period: Catalonia and Madrid to 5 years and Andalusia to 3.

### Does a parent pay income tax when gifting the family company to their children?

Not on the part that meets the state conditions of article 20.6 of the inheritance and gift tax law: article 33.3.c of the income tax law says there is no capital gain, and the children take over the parent's acquisition value and date. But the TEAC limits this to the proportion of business assets: if 20% of the company's assets are non-business assets, that 20% of the gain is taxed in the parent's income tax return.

### Does the exemption apply if I hold my shares through a holding company?

The exemption is for shares you own directly. With a holding company, what can be exempt are your shares in the holding, if it meets the conditions itself: a genuine business activity, with stakes of at least 5% managed with its own staff and resources, and your paid management role. To value the exempt part, the same rules are applied to each subsidiary. It needs a case-by-case review.

## Sources

- [Law 19/1991 of 6 June on wealth tax (consolidated text): articles 4.Ocho, 16.Uno and 29](https://www.boe.es/buscar/act.php?id=BOE-A-1991-14392), BOE, accessed 2026-10-18
- [Royal Decree 1704/1999 on the conditions for exempt businesses and shareholdings in wealth tax (consolidated text): articles 3 to 9](https://www.boe.es/buscar/act.php?id=BOE-A-1999-21571), BOE, accessed 2026-10-18
- [Law 29/1987 of 18 December on inheritance and gift tax (consolidated text): article 20](https://www.boe.es/buscar/act.php?id=BOE-A-1987-28141), BOE, accessed 2026-10-18
- [Law 35/2006 on personal income tax (consolidated text): articles 27, 29, 33, 36, 66 and 76](https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764), BOE, accessed 2026-10-18
- [Law 38/2022, article 3: temporary solidarity tax on large fortunes (section Cuatro, exempt assets)](https://www.boe.es/buscar/act.php?id=BOE-A-2022-22684), BOE, accessed 2026-10-18
- [Resolution 2/1999 of 23 March of the Directorate General of Taxes on the inheritance and gift tax reductions for the main home and family businesses](https://www.boe.es/buscar/act.php?id=BOE-A-1999-8180), BOE, accessed 2026-10-18
- [Binding ruling V2390-23 of 5 September 2023: individual stake and management by the spouse](https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V2390-23), DGT, accessed 2026-10-18
- [Binding ruling V3261-23 of 19 December 2023: article 33.3.c of the income tax law on a gift of shares](https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V3261-23), DGT, accessed 2026-10-18
- [TEAC decision of 29 May 2023 (00/01501/2020): proportionality rule in article 33.3.c of the income tax law](https://serviciostelematicosext.hacienda.gob.es/TEAC/DYCTEA/criterio.aspx?id=00/01501/2020/00/0/1), TEAC, accessed 2026-10-18
- [Tributación autonómica. Medidas 2026, chapter IV: summary of regional tax measures in force (updated 23 September 2026)](https://www.hacienda.gob.es/sgfal/financiacionterritorial/autonomica/capitulo-iv-tributacion-autonomica-2026.pdf), Spanish Ministry of Finance, accessed 2026-10-18