Leasing of real estate to partners and family members and exemption from wealth tax

The fact that a family business leases real estate it owns to its partners or their relatives does not prevent, provided certain requirements are met, the full application of the exemption on company shares provided for in Article 4.Eight.Two of the Wealth Tax Law (IP).

The key is to determine whether the properties leased to partners or family members can be considered part of the entity's economic activity.

The High Court of Justice of Catalonia (TSJ de Cataluña) has ruled on this issue in its judgment No. 768/2025 (appeal No. 189/2023), adopting a criterion that is very beneficial for family businesses that meet certain requirements.

We have already seen in previous posts on our blog that the aforementioned exemption can only be applied if, for the purposes at hand, more than half of the company's assets are related to economic activities. And, as we said in those posts, when a company is engaged in the leasing of real estate, for that activity to be considered economic, it is necessary to have the material and human resources available for its management and, in any case, to employ at least one person on a full-time employment contract.

Assuming that we are dealing with a family-owned real estate leasing company that carries out an economic activity because it meets the above requirement, another question arises when some of those properties are leased to partners or their relatives: can those properties be considered related to the economic activity?

Based on the general rule that such properties can be considered as assets used for business purposes provided that they are necessary for obtaining the respective income, Royal Decree 1704/1999, which determines the requirements and conditions for shares in family businesses for the application of the exemption in the IP, expressly addresses this issue in section 3 of its article 6: “Assets intended exclusively for the personal use of the taxpayer or any member of the family group [...] or those transferred at below market value to related persons or entities [...] shall never be considered assets used for business purposes.”

However, how should this provision be interpreted?

The position maintained by the Directorate General of Taxes (DGT) prior to the ruling by the High Court of Justice of Catalonia was favorable to the taxpayer

The DGT had already resolved this issue in two binding consultations:

• In its response to consultation V1255-20, dated May 5, 2020, it held that properties leased to family members can be considered related if they are transferred through a lease agreement entered into at market price by the entity in the course of a real economic leasing activity.
• It subsequently ratified this criterion for a very similar case in its response to consultation V1036-22, dated May 9, 2022.

These consultations reassured the partners of many family businesses, but they were not always followed by the regional administrations in their verification procedures.

In ruling no. 768/2025, the High Court of Justice of Catalonia adopts the same criteria as the Directorate General of Taxes

The ruling resolves a case in which the family business in question was engaged in the rental of real estate and its tenants included members of the family. The contracts existed, the rents were at market rates, and the regional government did not question that the company met the requirements to be considered as carrying out an economic activity. However, the administration considered that, as the properties were leased to family members, they should not be considered related, upholding a restrictive interpretation of the aforementioned Article 6.3 of Royal Decree 1704/1999 and, consequently, denied the exemption from IP for the proportional part of the shares. The settlement made by the regional administration was appealed, and the Regional Economic-Administrative Court of Catalonia (TEARC) understood that the aforementioned properties were related to the economic activity of the family business because "when the rule refers to items ‘intended exclusively for personal use,’ it refers to those assets that are used without generating any consideration, to differentiate them from assets transferred at a price below market value. In other words, it differentiates between goods transferred free of charge and those transferred at a price below market value."

However, this ruling was appealed by the Attorney General of Catalonia before the High Court of Justice of Catalonia, as he did not agree with the TEARC's interpretation of the aforementioned article.

After analyzing these facts, the High Court of Justice of Catalonia agreed with the TEARC's interpretation and ruled that the regional administration should have followed the criteria upheld by the DGT in its binding consultations and not carried out a settlement based on different criteria. Finally, it concluded that "given that it has not been questioned that the leases of real estate to family members were not carried out at market price, it should be understood that said real estate is subject to the entity's activity [...]. It would be different if they had been transferred without a contract or leased at a price significantly below market value. In this case, such properties would not be subject to taxation because the transfer would not generate any financial consideration for the taxpayer."

In conclusion

To summarize the content of the ruling by the High Court of Justice of Catalonia, we must highlight the following:

• The impact on real estate cannot be excluded solely because it is leased to partners or their relatives if the other legal requirements are met: existence of a lease agreement, market rent, and real economic activity.
• The aforementioned Article 6.3 is intended to prevent properties transferred free of charge or at below market prices from being considered affected, but not to exclude actual leases at market prices.
• It cannot be ruled out that this interpretation may be reviewed by the Supreme Court if the Attorney General of Catalonia lodges an appeal against this ruling by the High Court of Justice of Catalonia.

Taking the above into account, if a family business leases real estate to its partners or family members, it is advisable to take the following measures:

• The company must have the necessary material and human resources so that the real estate leasing activity can be classified as economic (with special attention to hiring a full-time employee).
• Leases must be formalized in written contracts containing the relevant clauses.
• The rents set must be in line with the market (for which it would be very useful to have comparable prices taken from real estate portals or appraisals by independent experts), and their payment must be duly justified.

Our lawyers specializing in tax law can help you manage these types of issues relating to family businesses. You can contact them here. 

• More information about Family Business

Laura Vicente – Family Business Group

Director in the tax area