The Supreme Court has put an end to a traditional debate in the field of the benefits of the family business regime in the inheritance and gift tax, by ruling that (contrary to what the Administration and some courts had been arguing), no additional requirements can be demanded beyond those established by the Personal Income Tax law for the rental of real estate to be classified as an economic activity, given that this is a necessary and sufficient condition.
In the family business regime, the lucrative transfer of shares in the share capital of entities that carry out an economic activity entitles, subject to compliance with other requirements, to apply a reduction in the taxable base of the Inheritance and Gift Tax (IGT) of at least 95% of the value of the share inherited or received as a donation. To determine whether an entity dedicated to the leasing of real estate carries out an economic activity, the IGT regulations refer to the Personal Income Tax regulations (article 27.2 of the Law on this tax), which requires having at least one full-time employee with an employment contract to manage the leasing activity.
On July 14, 2025, the Supreme Court issued a ruling that represents a relevant shift in the interpretation of this rule, that is, what are the necessary requirements for the activity of leasing real estate to be considered as an economic activity for the purposes of applying the tax benefits of the family business regime. specifically in the field of IGT.
Until the aforementioned judgment, both the Directorate General of Taxes (DGT) and our courts interpreted that formal compliance with this requirement (full-time employee) was not sufficient on its own. That is to say, it was a necessary requirement, but not sufficient. Specifically, it was required that the hiring of an employee respond to a real and justified need from the point of view of its economic reasonableness. In other words, there had to be sufficient workload to justify the existence of a full-time employee. According to this criterion, if the volume of the activity (by number of leased properties, because they were very old or long-term lease contracts that did not require periodic renewal, etc.) did not really require that employee, the consideration of it as an economic activity and, therefore, the application of the tax benefits of the family business regime was denied.
The Supreme Court ruling resolves a case in which the heirs of a holding company dedicated to the rental of real estate applied the 99% reduction in the IGT because they considered that they met the legal requirements: the company had premises (an additional requirement to that of the employee that the Personal Income Tax rule required at the time of the regularization in question) and a full-time employee. The Inspectorate and, subsequently, the High Court of Justice of Aragon, rejected the reduction arguing that the workload did not justify the hiring of a full-time employee, since many of the procedures were outsourced and the actual volume of work was very low. The company, the participation on which were transferred mortis causa, owned sixteen leased properties, of which fourteen were managed by a different subcontracted company, one was leased to the members of the family itself and, with respect to the latter, it was indicated that “there is no record of the existence of incidents that entailed an additional workload to the mere issuance of receipts and collection of rents and their accounting”.
Faced with this, the Supreme Court concludes that, in order to consider that there is economic activity in the leasing of real estate, it is sufficient to prove compliance with the requirements set out in article 27.2 of the Personal Income Tax Law (currently, only one employee with a full-time employment contract, as already indicated). In other words, according to the High Court, it is not necessary to justify such hiring from an economic point of view or, therefore, to analyze whether the workload requires having a full-time employee.
The Supreme Court considers that the purpose of the aforementioned article 27.2 of the Personal Income Tax Law is to establish minimum requirements for the activity of leasing real estate to be understood as a business activity. In addition, it adds that, in the specific area of IGT, this provision must be interpreted in the light of the EU’s recommendations to promote the survival of the company through an appropriate tax treatment of succession. According to the court, the purpose of the rule is to provide legal certainty to taxpayers and facilitate the transfer of the family business, avoiding the uncertainty that would be involved in leaving the assessment of the workload in each specific case to the discretion of the Administration. Requiring an additional requirement not provided for in the law, such as the economic justification of the contract, introduces insecurity and goes against the objective of the regulation, which is to guarantee the continuity of family businesses.
The Supreme Court’s ruling therefore represents an important advance in the legal certainty of taxpayers. This new criterion seems to be that, at least in the field of IGT, it eliminates the uncertainty that had been generated by the restrictive interpretation of the Inspection and our courts, being able to consider, a priori, that it is sufficient to comply with the legally established requirement of the hiring of a full-time employee for the leasing activity to be considered economic, without it being necessary to justify the economic need for the contract.
It should not be ignored, in any case, that the court itself reminds the Inspectorate that, if it considers that the contract is fictitious or simulated, it must resort to the specific procedures to declare the simulation, with all the guarantees, and not deny the reduction simply on the grounds that there is not a sufficient economic need; which seems to leave the door open to continue questioning the existence of an economic activity if the hiring of the employee can be considered fictitious or simulated.
