The Community of Madrid has approved Law 3/2026 of June 30 on Family Business Support, which introduces a major improvement to the tax regime applicable to the transfer of family businesses and entity shares under the Inheritance and Gift Tax. The regulation entered into force on July 1 and aims to facilitate generational handover, reinforce the continuity of family businesses, and significantly reduce the taxation of transfers by both inheritance and donation.
Key Developments
1. 99% Regional Reduction for Family Businesses The main novelty consists of the creation of a dedicated 99% reduction for the acquisition of:
Sole proprietorships.
Professional businesses.
Shares in entities that meet the requirements of a family business.
This reduction applies to both mortis causa acquisitions and inter vivos donations, substantially improving the previous regime.
2. Equalization of Inheritance and Gift Treatment Until now, state regulations established a less favorable treatment for certain donations. The new Madrid law practically equalizes the regime applicable to:
Transfers upon death.
Transfers during lifetime.
This favors the early planning of the generational handover.
3. Expansion of Beneficiaries One of the most relevant changes is the expansion of the circle of family members who can benefit from the reduction. In addition to descendants, ascendants, and spouses, the following may also qualify:
Group III family members.
Collateral relatives up to the fourth degree, both by blood and by affinity.
Likewise, access to the benefit is extended to certain employees or executives when specific requirements regarding seniority and management duties are met.
4. Relaxation of Requirements for Corporate Shares The Law introduces important improvements to the requirements demanded to apply the reduction on corporate shares. Among other matters:
The family group that can be computed to accredit the minimum joint participation of 20% is expanded.
Management duties may be performed by any of the individuals belonging to said family group.
The requirement that the entity carry out a genuine economic activity and not be of a patrimonial nature is maintained.
5. Reduction Also Applicable to Certain Financial Assets The regulation clarifies that the reduction can be extended to certain financial assets and treasury funds when they stem from profits obtained through economic activities. This precision is especially relevant for holding companies and family groups with excess cash flow.
6. Reduction of the Maintenance Period The obligation to retain the acquired assets or shares is maintained, but the required period is now set at five years, for both inheritances and donations.
7. Technical Improvements The Law also incorporates various technical modifications aimed at providing greater legal certainty, including:
Updating regulations regarding disability.
Systematic reorganization of Inheritance and Gift Tax reductions.
Modification of the naming of various provisions in the regional Consolidated Text.
Assessment The approval of this Law makes the Community of Madrid one of the autonomous regions with the most favorable tax regime for the transfer of family businesses. The new regulation significantly facilitates succession and wealth planning, reduces the tax cost of the generational handover, and broadly expands the subjective scope of application for tax benefits.
However, the application of these reductions remains conditioned on compliance with the requirements set forth in both regional regulations and the Wealth Tax Law, particularly regarding the effective exercise of management duties, the existence of economic activity, and the retention of the acquired assets or shares.
What Do We Recommend? Family businesses should review the following as soon as possible:
The ownership structure of the family group.
Compliance with family business requirements.
Family protocols and succession plans.
The convenience of anticipating transfers through donations to take advantage of the new regime.
Proper review will maximize tax benefits and avoid contingencies in future transfers.
Fiscal Department – UHY Fay & Co Tax & Legal
