The letting of real estate and economic activity in the tax reliefs for family businesses

The letting of real estate as the source of conflict in tax reliefs

Under tax legislation, the letting of real estate is the only activity for which it is required to employ a person under a full-time employment contract in order for it to be regarded as an economic activity.

Irrespective of the implications that this classification may have for Corporation Tax (CT) and Personal Income Tax (PIT), it also has consequences for Wealth Tax (WT) and, by extension, for the Temporary Solidarity Tax on Large Fortunes (ITSGF) and Inheritance and Gift Tax (IGT) applicable to the shareholders or participants in such companies.

In particular, the allocation of real estate assets to an economic activity will determine whether their value may be exempt for the purposes of WT–ITSGF and eligible for the reduction provided under IGT for family businesses.

In relation to this issue, two recent judgments of 17 and 19 February 2026 (Supreme Court judgment 637/2026 and Supreme Court judgment 640/2026) have been delivered, in which the Supreme Court examines a very common situation in business groups, adopted for reasons of economic security: the separation of real estate assets from the rest of the business assets. In other words, placing real estate in one company and locating the remaining economic activities in one or more separate entities.

The issue examined in these judgments centres on the application of the exemption for WT–ITSGF purposes and the 95% reduction in the taxable base for IGT purposes in cases involving the acquisition, whether mortis causa or inter vivos, of shareholdings in entities engaged in the letting of real estate.

Tax reliefs and the letting of real estate: the requirement of economic activity

In relation to letting activities, WT–ITSGF and IGT refer to the provisions of Personal Income Tax (PIT) legislation in order to determine whether an economic activity is being carried on and, consequently, whether the relevant tax reliefs are available. The applicable provision in such cases is Article 27(2) of Law 35/2006 governing PIT, which requires, for this purpose, that there be at least “one employee engaged under a full-time employment contract”.

In its February judgments, the Supreme Court addresses whether, in the context of corporate groups, the requirement to have an employee must be met at the level of each individual letting company — that is, whether each real estate entity must have its own full-time employee to manage the lettings — or whether this requirement may instead be satisfied at group level.

Administrative approach to the letting of real estate and tax reliefs

As is often the case in the application of tax reliefs, this issue has given rise to considerable conflict between taxpayers and the inspection bodies of the Tax Agency.

The Directorate-General for Taxation (DGT) and the Central Economic-Administrative Court (TEAC) have consistently maintained that:

• the requirement to have an employee must be satisfied in each entity carrying on the letting activity;
  

• this requirement cannot be regarded as fulfilled through the use of human resources belonging to other entities within the group;
  

• the existence of a holding structure or the centralisation of functions does not alter this conclusion.
  

As evidence of this, reference may be made to the replies to binding rulings V1624-23 of 8 June and V1184-25 of 1 July, as well as to TEAC Decisions 3979/2009 and 4257/2010.

These arguments have been relied upon by the inspection authorities to require, in their review proceedings, that each letting company has its own employee engaged under a full-time employment contract to manage the lettings, without assessing the structure of the corporate group.

February 2026 judgments on the letting of real estate and family businesses

The case concerns the gift of shares in a holding company, made by parents in favour of their children, with the application of a 95% reduction in the taxable base on the value of the shares received.

This business group was engaged in agricultural activities. In particular, the companies forming the group were involved in the production of seeds, their commercialisation and the letting of rural properties. Likewise, as is common in many corporate groups, certain cross-functional tasks, such as accounting or administration, were centralised within one of the group companies.

In this situation, the tax authorities partially denied the application of the 95% reduction to the children, taking the view that the letting of rural properties could not be regarded as an economic activity, as there was no employee engaged under a full-time employment contract to manage it.

In response to this interpretation, the donees argued that the material and human resources were available at the level of the corporate group and that the concept of economic activity in the case of real estate letting should be interpreted more broadly.

Accordingly, the Supreme Court states, in very specific terms, that “the issue of cassational interest lies in determining whether the requirement under Article 27(2) PIT Act may be regarded as satisfied where the letting activity is genuinely integrated within a joint economic activity of the group, using centralised human and material resources”.

Case law established on the letting of real estate in corporate groups

In the specific case under consideration, the Supreme Court held that the requirement to have an employee may be regarded as satisfied, even if it is not formally met within the letting entity itself, where the letting activity is integrated into a group-wide economic activity and is organised through human and material resources centralised in other entities.

In other words, a genuine functional and economic integration of the letting entity within the group’s activity is required. Conversely, this case-law approach would not apply in situations of mere formal membership of a group, without a real organisational and economic integration of the letting activity.

Practical implications for tax reliefs in the letting of real estate

The Supreme Court’s doctrine, as reflected in the February judgments, is based on highly specific factual scenarios, shaped by particular circumstances that were decisive in its reasoning.

That said, notwithstanding its case-specific nature, this interpretative approach could serve as a basis for supporting the classification of an activity as an economic activity in situations other than those examined by the Supreme Court.

In conclusion, these judgments have reinforced legal certainty for taxpayers, insofar as their reasoning consolidates a purposive interpretation of the tax reliefs applicable to family businesses, as opposed to the formalistic and literal approach historically adopted by the tax authorities, both at state and regional level.

That said, although this is welcome news, the conclusion is not absolute, and it is essential to obtain specialist advice in order to review each specific case and avoid potential disputes with the tax inspection authorities.

For this reason, if you would like us to review your specific situation, at Devesa we can assist you throughout this process with the utmost reliability and technical expertise.

Frequently Asked Questions (FAQ) on the letting of real estate and tax reliefs

Obtaining specialist advice is key to ensuring access to tax reliefs and avoiding disputes with the tax inspection authorities.

Do you need advice? Access our area related to leasing of real estate and economic activity in the tax benefits of the family business:

Family Business

Tax Advice