The recent Judgment No. 956/2025 (ECLI:ES:TS:2025:3472), handed down by the Second Section of the Administrative Chamber of the Supreme Court in appeal 2197/2023, introduces a significant change in the interpretation of Article 27.2 of Law 35/2006 on personal income tax. The ruling—which declares that formal proof of the existence of a full-time employee for the activity of leasing real estate is sufficient—removes the additional requirement, upheld by the Inspectorate and the TEAC, of justifying a real and adequate workload. Next, we analyze its scope from an academic perspective, paying special attention to the effects on family businesses and the legal certainty of the tax system.
Approach to the interpretative problem
Historically, Article 27.2 of the Personal Income Tax Law (LIRPF) has conditioned the consideration of real estate leasing as an economic activity on the fulfillment of two requirements: (i) the existence of premises exclusively used for management purposes and (ii) the employment of at least one person on a full-time employment contract. With the requirement for premises exclusively dedicated to management eliminated, in practice, the Inspectorate added a third element—de facto jurisprudential—consisting of demonstrating the economic rationality of the contract. This restrictive criterion led to a high volume of settlements and appeals (more than 4,300 cases between 2015 and 2024), with adverse consequences on the application of incentives specific to family businesses in inheritance tax and the corresponding exemption in income tax.
Content and reasoning of the judgment
After examining the administrative and judicial evolution of the provision, the Supreme Court declares that the law does not impose any additional evidence regarding the economic necessity of the contract. The Supreme Court bases its decision on a teleological interpretation of the provision—in line with Recommendation 94/1069/EC of the European Commission—and emphasizes that the legislative purpose is to facilitate the continuity of the family business fabric, avoiding excessive burdens of proof that erode legal certainty.
Thus, the ruling overturns previous administrative doctrine, on the understanding that introducing parameters of “economic reasonableness” violates the principles of legal reserve and tax certainty enshrined in Article 31.1 of the Spanish Constitution.
Guarantee and simulation system
However, the ruling establishes an important counterbalance: The Administration retains the power to reclassify transactions when it suspects simulation (Article 16 LGT). But the burden of proof is reversed: you must explain the factual elements that reveal the artificial nature of the employment contract. This strengthens taxpayer protection against discretionary assessments whose evidentiary basis was, until now, vague.
Economic and patrimonial impact
A study by the General Council of Economists anticipates that the new doctrine will free up between €420 million and €600 million annually from 2026 onwards, by reinstating the 95% reduction in the ISD tax base (99% in Aragon) and consolidating the exemption in the IP for rental property structures. This effect can be illustrated with an example: the transfer, due to mortality, of a portfolio valued at €4 million would decrease from a tax burden of close to €1 million to just €45,000, a figure that optimizes liquidity and encourages reinvestment in the sector.
Impact on corporate planning
The elimination of the actual workload requirement renders meaningless many complex structures (subcontracting, external property management, intermediary companies) designed exclusively to satisfy that reasonableness test. From now on, an authentic employment contract with the leasing company will suffice to activate the incentive. This simplifies the governance of the family business and reduces compliance costs.
However, the Court leaves open the question of whether the requirement can be met by personnel employed by another entity within the group. A pending appeal will clarify whether the principle of functional unity of the group can replace the formal requirement.
Convergence with the rest of the legal system in 2025
The ruling comes amid reforms that are boosting investor confidence:
- Royal Decree‑Law 4/2025, of April 8, allocates €5 billion to a line of guarantees and expands the FIEM, bolstering business liquidity.
- Organic Law 1/2025 incorporates the Confidential Binding Offer (OVC) as a flexible out-of-court resolution mechanism, also applicable to rental disputes.
- Two recent Supreme Court rulings—April 9 (bank phishing) and April 21 (lease retraction)—reinforce investor protection and transaction security.
This regulatory framework positions Spain as a preferred destination for family office capital, a trend supported by reports from Knight Frank that place the country on the European podium for attracting family wealth by 2026.
Recommended courses of action
From a professional perspective, it is advisable to:
- Audit the employment status of the leasing company, ensuring the existence of a permanent, full-time contract with verifiable duties.
- Review the tax projection for IP 2025 and inheritance, incorporating the now consolidated reduction or exemption.
- Plan transfer schedules—inter vivos or mortis causa—to maximize the use of the incentive, especially in the face of possible political changes.
- Monitor case law developments regarding intra-group employees and future binding consultations by the DGT.
Ruling 956/2025 is a milestone in defining the concept of economic activity and rebalances the relationship between the Administration and taxpayers. It is essential reading for anyone researching the taxation of family businesses, and particularly for those who design asset leasing structures. The new doctrine provides certainty, reduces litigation, and strengthens Spain’s competitiveness as a center for real estate investment. In light of this paradigm shift, specialized advice is a crucial tool for translating the newly acquired legal certainty into tangible financial benefits.
