Succession in family businesses is a matter of great relevance and complexity in the Spanish legal field. It is not only about ensuring the continuity of the business but also about optimizing the tax burden on heirs. In our daily practice, we observe that the combination of legal figures such as the business pact and the family protocol, along with the tax advantages provided by legislation, can be the key to a successful transmission. In this article, we will address these aspects in detail, providing a useful guide for professionals in succession law.
The 95% Reduction in ISD
One of the most attractive tax incentives in the succession of family businesses is the 95% reduction in the Inheritance and Donations Tax (ISD), as contemplated in Article 20.2.c of the ISD Law. This reduction applies to the value of the shares of the family business, provided certain requirements are met, such as the continuity of business activity for a minimum period of ten years and the active participation of the heir in the management of the business.
It is important to highlight that the qualification of a business as family-owned, and therefore the application of this reduction, can be a subject of controversy. The jurisprudence of the Supreme Court has emphasized the need for the business not to be merely a patrimonial instrument but to engage in real economic activity. Rulings such as the STS of March 15, 2024, have clarified that the business must demonstrate substantial economic activity and not be limited to mere ownership of assets.
Requirements to Qualify as a Family Business
For a business to benefit from the favorable tax regime, it must meet certain criteria detailed in the regulations. Among these is the requirement that at least 50% of the capital is held by one person or a group of relatives who meet the established kinship requirements. Additionally, at least one family member must hold a management position in the business.
The General Directorate of Taxes, in recent resolutions from 2025, has indicated that it is crucial to document both the ownership of the capital and the active participation in management. This documentation may include employment contracts, meeting minutes, and any documents that evidence involvement in the business. The lack of compelling evidence may lead to the denial of tax benefits, making documentation a critical aspect to consider.
The Family Protocol: More Than a Document
In the realm of family businesses, the family protocol serves as an essential tool for managing relationships between family members and the business. This document, while not legally binding, establishes guidelines for conflict resolution, succession, and family participation in the business.
In our experience, a well-designed protocol can prevent family disputes and ensure the continuity of the business. However, it is important that this document is reviewed periodically and adapted to changes that may arise, both in the family structure and in the business environment. The lack of updates can render it an obsolete instrument and a source of conflict.
Business Pact: A Strategic Figure
The business pact is a figure that allows family members to agree, in a binding manner, on matters related to the management and succession of the business. Unlike the family protocol, these pacts can have direct legal effects if properly formalized.
Our practice shows that these pacts often include clauses regarding the sale of shares, dividend policies, and rules for the incorporation of new family members into the business. However, their effectiveness depends on careful drafting and compliance with current regulations, avoiding clauses that may be deemed null for contravening fundamental rights or mandatory rules.
Common Practical and Litigious Aspects
In the process of succession of family businesses, conflicts frequently arise that can lead to litigation. A common issue is the challenge of wills or succession pacts by family members who feel aggrieved by the decisions made by the deceased or by the rest of the family.
Litigations regarding the valuation of the business are also common, especially when it comes to liquidating the ISD. Jurisprudence has established that the valuation must reflect the real market value, which implies the need for independent appraisals and, in some cases, resorting to judicial means to resolve significant differences in valuations proposed by the parties.
- Ensure proper documentation of active participation in the business.
- Draft clear family protocols and review them periodically.
- Formalize business pacts with attention to their legal validity.
In conclusion, succession in family businesses requires meticulous planning that combines appropriate legal and tax instruments. Tools like LexPartis can assist professionals in managing these processes, ensuring both regulatory compliance and family harmony.