The Supreme Court Ruling 3472/2025 of 14 July has settled a recurring dispute in the field of taxation.
The High Court has ruled that, in order to apply the reduction provided for in Article 20.2(c) of the Spanish Inheritance and Gift Tax Act (LISD) in the transfer of shares in companies engaged in property leasing, it is sufficient to meet the requirements laid down in Article 27.2 of the Spanish Personal Income Tax Act (IRPF).
This provision, Article 20.2(c) of the LISD, allows for a 95% reduction in the taxable base on the value of shares in family businesses or professional undertakings, with the aim of ensuring the continuity of the business activity. To benefit from this, the company must carry out a genuine economic activity, the transferor or their family members must perform management functions and receive a certain level of remuneration, and certain ownership thresholds must be met. In addition, the heirs or donees must retain ownership for a minimum period. In the case of property rental companies, an economic activity is deemed to exist if there is at least one employee with a full-time employment contract, as stated in Article 27.2 of the IRPF.
Until now, it had been interpreted that merely proving the existence of such an employee was insufficient, and that it was necessary to demonstrate a “sufficient workload” to justify the employment economically. This requirement forced an assessment of the volume of properties managed or the profitability of the activity, introducing a subjective element that was difficult to prove.
The Supreme Court rejects this restrictive interpretation and states that the law does not require any additional economic justification, thereby establishing the following interpretation in cassation:
“FOURTH. Established jurisprudential doctrine
In response to the question of legal interest raised, and as reasoned above, in order to apply the reduction provided for in Article 20.2(c) of the Inheritance and Gift Tax Act, in relation to the activity of property leasing, it is sufficient to prove compliance with the requirements laid down in Article 27.2 of the Personal Income Tax Act, without the need to justify the employment of the full-time employee from an economic standpoint.”
In summary, the Supreme Court applies a strict interpretation of the legal text which, in practice, is favourable to the taxpayer, as it rejects the imposition of unregulated requirements and facilitates access to the 95% reduction.
