Leasing to Related Parties: Impact on Family Business Tax Benefits

On April 15, Expansión published an opinion article written by our partners Carlos Muñoz and Emma S. Corretger, analyzing the classification of properties leased to related parties as “business assets” of a family-owned company.

In practice, it is common for companies engaged in property leasing, owned by a family group, to rent out some of their assets to partners or close relatives, either at market value, below market price, or even free of charge. This nuance is key to determining whether these properties qualify as business assets, a necessary requirement to access tax benefits such as the Wealth Tax (IP) exemption or the 95% reduction in the Inheritance and Gift Tax (ISD).

Both Spanish and Catalan regulations state that properties used exclusively for the personal use of the family group or transferred below market value to related parties cannot be considered business assets. However, the interpretation of these scenarios has caused legal controversy.

While several binding rulings from the Spanish Tax Authority (DGT) in 2020 and 2022 have held that a property rented at market value may be considered a business asset, the High Court of Justice of Catalonia and the Catalan Tax Authority have ruled otherwise.

The recent ruling by the Catalan High Court, which adopts the criterion of the national DGT and focuses on the economic reality of the activity, helps clarify a key issue for the tax planning of family businesses.

Read the full article at Expansión.

We thank Expansión for once again trusting our experts.