Lifetime Usufruct over Company Shares and Wealth Tax

1. Introduction

Transferring assets during one’s lifetime to children or direct relatives is a concern for many business-owning families. In these processes, taxation can become a major obstacle if it is not properly planned.
In particular, the lifetime usufruct over shares and the exemption in Wealth Tax are today a central topic in family business planning, as they make it possible to combine the transfer of assets with the retention of economic control and continuity of management.
In this context, the lifetime usufruct presents itself as an effective legal tool for transferring bare ownership to the next generation, while keeping the use, enjoyment and receipt of profits for as long as the usufructuary lives.
However, an essential question arises: how is this arrangement treated for tax purposes in Wealth Tax (IP)? And is it compatible with the exemption in Article 4.Ocho.Dos of the Wealth Tax Act, applicable to the family business?

The lifetime usufruct over shares and the exemption in Wealth Tax are a matter of growing relevance in the estate planning of family businesses.

2. General Framework of the Exemption in Article 4.Ocho.Dos of the Wealth Tax Act

Article 4.Ocho.Dos of Law 19/1991 of 6 June 1991 on Wealth Tax (Ley del Impuesto sobre el Patrimonio, LIP) establishes the exemption for shareholdings in entities provided that the following requirements are met:

1. The entity must effectively carry on an economic activity, and its main activity must not be the mere management of movable or immovable assets.
   For these purposes, an economic activity is deemed to exist where the entity has adequate human and material resources to manage its activity; in the case of property letting, this requires having, as a minimum, one employee on a full-time employment contract and premises used exclusively for that management, in accordance with Article 27 of the Personal Income Tax Act (Ley del IRPF).
   In this way, the exemption is reserved for operating companies, excluding purely asset-holding entities whose assets consist of more than 50% of securities or non-business assets.

2. The taxpayer’s shareholding must be at least 5% individually or 20% jointly with their family group (Art. 4.Ocho.Dos.a LIP).

3. The taxpayer must perform management functions and receive significant remuneration for doing so, representing more than 50% of their income from employment and from economic activities (Art. 4.Ocho.Dos.c LIP).

This exemption is of enormous practical importance, since its application means no Wealth Tax is payable and, where applicable, the reduction in Inheritance and Gift Tax (ISD) provided for the family business.

3. The Problem: What Happens When the Holder Has Only a Usufruct over the Shares?

In recent years, the question has become particularly important in the context of family estate planning, where it is common for parents to donate the bare ownership of the shares to their children while reserving the lifetime usufruct for themselves.
The doubt is whether that usufruct right can also benefit from the exemption in Article 4.Ocho.Dos LIP, especially when it is integrated into family corporate structures.

4. Recent Administrative Doctrine: Analysis of Ruling V1318-25 (15 July 2025)

Binding ruling V1318-25 analyses a case in which the parents, holders of 100% of the share capital of an operating company resident in Spain, create a lifetime usufruct over part of their shares in favour of their children, while they keep the bare ownership.
The children (as usufructuaries) then plan to contribute the usufruct right to their respective family companies, of which they would be shareholders and directors.

The Directorate-General for Taxes (DGT) expressly starts from the premise that the requirements of Article 4.Ocho.Dos LIP are met, both in the original company and in the receiving family companies, and focuses its analysis on determining whether the lifetime usufruct right can be regarded as an asset assigned to the economic activity, and whether that contribution could affect the access to or scope of the exemption.

The administrative position is clear:

“The lifetime usufruct right that would be contributed to the entities directly held by each of the applicants would be considered an asset assigned to the economic activity that would not invalidate either the access to or the scope of the exemption provided for in Article 4.Ocho.Dos of the LIP, provided that it is considered necessary for the performance of that activity.”

The DGT does not assess access to the exemption (which is taken as met), but its objective scope.
It also records that the specific assessment of the “necessity” of the usufruct for the activity falls to the tax management bodies, in each particular case.

In short, the ruling confirms that the mere existence of the lifetime usufruct or its contribution to family companies does not jeopardise the exemption, provided that its link with the economic activity and its function within the family business structure can be justified.

5. Scope of the Exemption and Assignment of the Usufruct

The DGT distinguishes, in line with established doctrine, two levels in the application of Article 4.Ocho.Dos LIP:

1. Access to the exemption, linked to meeting the general requirements (economic activity, minimum shareholding and management functions).

2. Scope or extent of the exemption, which depends on the part of the value of the shares that is effectively assigned to the economic activity.

The core of V1318-25 lies precisely in this second level. The lifetime usufruct right, like the shares or the bare ownership, can be regarded as assigned to the economic activity when it performs a real function within the family business or the companies to which it is contributed.
The determination of that specific assignment must be made case by case, taking into account the nature of the entity, the composition of its assets and the need for the usufruct in its operations.

6. Conclusions

The most recent administrative doctrine consolidates a flexible and functional interpretation of the Wealth Tax exemption.
A lifetime usufruct over company shares, when integrated into a family business structure, does not prevent the exemption from being enjoyed, provided it can be shown that it is assigned to the economic activity and is necessary for its performance.

In short, ruling V1318**-25 reinforces the idea that the exemption depends not so much on the legal form of the right (full ownership, bare ownership or usufruct) as on its economic purpose and its real contribution to the family business.**

For an overview of how to reorganise a family business under a parent company, see our tax guide to family holding companies in Spain.

Author: Virginia Vicens Monserrat, Partner at Vicens Advisors

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