Whether property leasing qualifies as a business activity remains one of the most debated issues in family business taxation. The answer has major implications, particularly for access to Wealth Tax exemptions and Inheritance and Gift Tax reliefs—key incentives in wealth and succession planning.
Recent court decisions have reignited the debate rather than settling it, confirming that the issue is still very much alive.
1.Supreme Court ruling: a taxpayer-friendly stance
In its judgment of 14 July 2025, the Spanish Supreme Court clarified that property leasing should be treated as a business activity if the requirements set out in Article 27.2 of the Personal Income Tax Act are met—specifically, having a full-time employee under an employment contract dedicated to managing the rentals.
The tax authorities argued that formal employment was not enough and that taxpayers should also prove a real workload justifying the hire. The Court firmly rejected this view, holding that tax authorities cannot impose additional conditions not предусмотрed by law. Meeting the statutory requirements is sufficient.
That said, the Court acknowledged that where an employment arrangement is purely artificial, the authorities may still challenge it—but only through a formal simulation procedure and with full procedural safeguards.
2.National Court ruling: a more substance-based approach
Shortly before, the National Court reached a different conclusion in a 1 July 2025 ruling concerning personal income tax. While dealing with a different tax, the decision is highly relevant, as Wealth Tax law refers directly to personal income tax rules when assessing business activity.
In this case, the Court found that formal compliance alone was not enough. It required evidence of a genuine business structure aligned with the actual level of activity. Since the taxpayer only leased a single property under a long-term contract with minimal management, the Court concluded there was no real business substance.
3.A clear interpretative tension
Read together, these decisions highlight a clear tension. The Supreme Court prioritizes legal certainty and formal compliance, while the National Court adopts a substance-over-form approach that allows tax authorities to deny business status without formally alleging simulation.
4.Key takeaway
Case law in this area remains unsettled. While the Supreme Court provides welcome certainty, real-world practice shows that structures with limited activity may still face scrutiny. Tax authorities are likely to continue challenging certain property-holding structures, either by analyzing their economic substance or by alleging simulation where tax advantages appear to be the primary driver. A cautious, well-documented approach to wealth and succession planning therefore remains essential.
- Final Reflections
We believe that, at present, the matter remains far from settled from a case-law perspective. Recent rulings show that interpretative criteria are not fully aligned regarding property leasing as a business activity, especially for small-scale structures.
While the Supreme Court provides important legal certainty about not requiring additional assessments of the hired employee’s economic necessity, practical experience shows that formal compliance alone may not suffice, particularly in cases with limited management activity.
In this context, tax authorities may continue to scrutinize certain real estate structures, either by examining their economic substance or, where appropriate, invoking simulation when the arrangement primarily seeks tax advantages. A cautious, well-documented approach to wealth and succession planning is therefore essential.
For tailored advice, contact the tax experts at addwill by phone on +34 934 875 200, by email at comunicacio@addwill.eu or via our contact form.