The Supreme Court has issued a ruling on the reduction in the Inheritance and Gift Tax (ISD) applicable to family businesses engaged in real estate leasing. The judgment establishes that it is sufficient to comply with the formal requirements set out in Article 27.2 of the Personal Income Tax Law (IRPF)—having an exclusive office and a full-time employee—in order to apply the ISD reduction.
The Supreme Court’s decision stems from a tax assessment issued by the Tax Administration of the Autonomous Community of Aragon, which denied a 99% ISD reduction to certain heirs, arguing that the company’s activity did not justify the hiring of permanent staff. The reasoning stated that many tasks were outsourced and that the remaining ones did not require a full-time position. This interpretation was upheld by the Aragon Regional Economic-Administrative Court (TEAR) and the Aragon High Court of Justice (TSJ).
Dissatisfied with the TEAR and TSJ rulings, the heirs appealed the latter’s decision to the Supreme Court. The Court rejected that position, stating that the law does not require assessing the economic necessity of the employee and that introducing such a criterion adds a condition not contained in the regulation. It also criticized the Administration for suggesting a simulated hiring without following the legal procedure to declare it as such. The Supreme Court clarified that the purpose of the rule is to facilitate the continuity of family businesses in succession processes. Questioning the fulfillment of formal requirements without legal grounds creates legal uncertainty.
Consequently, according to this Supreme Court ruling, the ISD reduction in cases of real estate leasing only requires compliance with the IRPF requirements: an exclusive office and a full-time employee. There is no need to demonstrate a minimum workload or justify the hiring on economic grounds. The judgment invalidates the criterion applied by several regional tax authorities and clarifies the scope of this tax benefit.
