Protect Your Spanish Business Assets from Heirs Tax

Urgent warning for foreign investors: your company´s “safe” cash in Spain can cost you thousands in inheritance tax.

For you, as an investor who chose Spain to establish your wealth or business, the Inheritance and Gift Tax stands as a major concern in wealth planning. The good news is that Spanish law offers significant savings tools. One of the most attractive is the substantial “Family Business” relief, which can reach up to 99% of the share value.

This tax exemption was originally designed to ensure business continuity during generational succession. However, a recent court ruling has challenged the application of this relief. This creates a new barrier that every foreign investor must urgently understand. We refer to Ruling 533/2025 by the High Court of Justice of Galicia (TSJ Galicia). This ruling sets a crucial precedent for business assets.

The New Requirement: “Tied” Money and Idle Cash Risk

For the Tax Administration (Hacienda) to grant this relief, your company must meet one essential requirement: all of its assets (goods, properties, and, crucially, cash) must be “tied” to the real business activity. Simply put, these assets must be necessary and essential for the current or future development of the company´s core economic activity.

Hacienda does not merely verify if your company sells products or services; in addition, it closely examines the purpose of the money the company generates.

The problem arises when the company retains large amounts of liquidity with no clear destination. The two main red flags are:

1. Large amounts of unused money in the bank (what fiscal experts call “idle cash” or tesorería ociosa)
2. Long-term financial investments (such as acquiring stocks or bonds) held within the corporate structure.

The Administration´s position is clear: if the money is not directly used in the company´s economic activity, it is considered personal wealth “disguised” as a business asset. Consequently, they demand thar the corresponding inheritance taxes be paid without the application of the relief.

In the specific case resolved by the TSJ Galicia ruling, the investor lost the relief on over a quarter (26,70%) of their company´s total value. This happened simply because the administration determined that the liquidity and internal investments were not strictly necessary for the company´s economic activity.

How to Justify the Necessity of Your Cash

This is the key issue, especially for investors accustomed to conservative liquidity management. Bear in mind that the burden of proof is entirely yours. It is not enough to argue that “the money is saved just in case” or as an emergency fund; the necessity must be professionally proven and documented, linked to concrete projects.

The mentioned ruling clearly indicate which arguments ARE NOT sufficient to defend you liquidity:

• Fistly, it is not enough to have an “Investment Plan” if it has not actually been executed or transparently reflected in official company documents, such as the Annual Accounts.
• Furthermore, it is not enough to cite the law generically; it is imperative to prove that the cash retained is what your sector needs to cover short-term debts or unforeseen events, compared to similar companies.

For example, if you fail to justify this need with clear data and documents (expert appraisals, detailed budgets, concrete expansion projects, etc.), the Administration will resort to standard mathematical formulas (such as the “acid-test ratio”) to determine what part of your cash it considers “idle”. The entirety of the Inheritance Tax will be applied to that amount, without the “Family Business” relief.

To get additional information about the regulations for non-residents Agencia Tributaria (AEAT) – Inheritance Tax for Non-Residents, please check the information on the website.

Protect Your Assets and Plan your succession

If you own a company or shares in Spain and are planning the succession or donation to take advantage of the up-to-99% relief:

1. Documentarily Justify Your Cash: Every euro of cash or financial investment retained by your company must be documented and justified. This means linking it to a real, future investment project. Therefore, this justification must be flawless.
2. Review Your Structure and Stability: Speak immediately with your tax advisor. It is vital to determine what percentage of your company´s value could be considered at risk of being a “non-tied asset”. From there, design a legal strategy to restructure or adequately justify that liquidity, minimizing the risk. We recommend reviewing our Holding structures section for related information.

Inheritance planning in Spain is a complex process that requires expert guidance. At Consultinfo, we help you protect your asset structure and navigate the process smoothly. Contact us to secure your wealth.