New Clarity for Clients Moving to Madrid
A recent binding tax ruling from the Madrid regional tax authorities provides important clarification on the interaction between Madrid’s investment incentive for incoming taxpayers and unit-linked life insurance policies issued by EU insurers.
The Community of Madrid introduced an attractive tax incentive in 2024 for certain individuals moving to the region from abroad and making qualifying investments. Commonly referred to as the “Mbappé Law”, it has attracted considerable attention among internationally mobile individuals and their advisers.
For wealth planning purposes, however, one important question remained: can the tax incentive be accessed where qualifying investments are held through a unit-linked life insurance policy rather than acquired directly?
A recent ruling from the General Directorate for Taxation of the Community of Madrid provides clarity. It confirms that the portion of premiums invested in qualifying assets may be eligible for the regional tax deduction, while the portion attributable to the insurance risk is excluded.
This creates an interesting tax planning opportunity for individuals relocating to Madrid, particularly those with substantial internationally diversified investment portfolios.
What Is The “Mbappé Law” And Who Can Benefit from It?
The “Mbappé Law” provides a regional Personal Income Tax deduction for qualifying investments made by individuals who become Spanish tax resident in Madrid following a period of non-residence in Spain.
Eligible individuals can claim a tax deduction in Madrid equal to 20% of the acquisition value of qualifying investments. If there is insufficient tax liability to use the full deduction immediately, the unused amount may be carried forward for the following five tax years, subject to the conditions of the regime.
Importantly, the incentive is not restricted to investments in Madrid or elsewhere in Spain. This makes it potentially valuable for international families moving to Madrid with substantial investment portfolios.
Broadly, an individual must:
- become tax resident in the Community of Madrid;
- not have been tax resident in Spain during the previous five years;
- make the qualifying investments within the permitted investment window;
- maintain the qualifying investment for six years; and
- remain a Personal Income Tax resident of Madrid until the end of the required holding period.
The recent ruling clarifies that the six-year holding period runs from the date the relevant securities are acquired. Disposals are permitted during this period, provided the proceeds are fully reinvested in other qualifying assets within the required timeframe.
Which Investments Can Qualify?
There are two broad categories of qualifying assets, which can include both listed and unlisted investments:
- Securities representing the transfer of own capital to third parties, whether or not traded on organised markets. In practice, this covers many conventional debt and fixed-income investments, like government and corporate bonds, treasury bills and other qualifying debt securities.
- Securities representing an equity participation in an entity, whether or not traded on organised markets. This can include listed and unlisted shares and certain shares or units in collective investment vehicles.
Additional conditions apply to certain unlisted investments, including restrictions around ownership (not exceeding 40%, including the holdings of certain related parties), the investor’s relationship with the underlying company and investment in entities located in non-cooperative jurisdictions (i.e. tax havens).
An Important Development for Unit-Linked Life Insurance
The recent ruling concerned an individual who took out a unit-linked life insurance policy with a Luxembourg insurer. The premium was invested in qualifying debt and equity securities in line with the client’s selected risk profile and managed by an external asset manager.
The Madrid tax authorities recognised the dual insurance and investment characteristics of a unit-linked policy and confirmed that the portion of the premium performing an investment function can benefit from the regional deduction where it is invested in qualifying assets.
Only the amount allocated to the insured contingency falls outside the incentive because it does not perform an investment function.
For advisers, the important point is that the policy itself does not make an investment eligible. The underlying assets and how the portfolio is structured remain critical.
Portfolio Construction Matters
A carefully structured unit-linked life insurance policy may hold a diversified portfolio of qualifying investments while providing significant investment flexibility.
In the ruling, the investments were discretionary managed by an external asset manager in accordance with the client’s selected risk profile.
For advisers, this highlights the importance of coordination between the tax adviser, insurer and asset manager when the policy is established and throughout the relevant holding period.
“Mbappé Law” Versus “Beckham Law”
Despite the similar nicknames, these are very different regimes and are incompatible with each other.
The “Beckham Law” is a nationwide Spanish regime under which qualifying individuals moving to Spain can elect to be taxed for a limited period under special rules largely based on the taxation of non-residents.
By contrast, the “Mbappé Law” applies only in Madrid. The individual remains an ordinary Spanish Personal Income Tax taxpayer, with the benefit arising from qualifying investments and the corresponding regional deduction.
Another important distinction is that the “Beckham Law” excludes professional sportspeople, while Madrid’s “Mbappé Law” does not.
Choosing between the two is therefore an important pre-arrival planning decision. It will depend on the client’s income, employment arrangements, investment portfolio, expected period of Spanish residence and longer-term mobility plans.
Why Does the Ruling Matter?
The tax ruling confirms that qualifying investments made through a foreign unit-linked life insurance policy can potentially benefit from Madrid’s investment tax deduction.
For the right client, a properly structured policy issued by a Luxembourg or Irish insurer may combine:
- access to Madrid’s 20% Personal Income Tax deduction on qualifying investments;
- Personal Income Tax deferral during Spanish residence;
- succession and estate planning opportunities, including tailored beneficiary arrangements; and
- portability for internationally mobile clients, including eventual departure from Spain without triggering Spanish Exit Tax in respect of the policy.
This makes the ruling relevant not only from a tax perspective but also when advisers are considering a client’s wider pre-arrival wealth, succession and mobility planning.
A Client Example
Consider a French resident planning to relocate to Madrid, as in the circumstances described in the ruling. He has not previously been tax resident in Spain and, because of his professional circumstances, does not qualify for the Beckham regime.
The client is an experienced investor who already uses life insurance for long-term wealth planning and wants to use this structure after moving to Spain.
He invests €5 million in an appropriately structured Spanish compliant unit-linked life insurance policy. The investment component is allocated to qualifying assets, including listed equities, government and corporate bonds and other qualifying debt securities, under a standardised and predetermined discretionary investment mandate.
Subject to meeting all the conditions, the client could potentially obtain a €1 million Personal Income Tax deduction, representing 20% of the qualifying investment. Where there is insufficient tax liability to use the full deduction immediately, it may be carried forward for the following five tax years.
At the same time, the policy shall provide gross roll-up of investment returns during Spanish residence alongside the wider benefits of a life insurance structure.
The key point for advisers is that internationally mobile clients do not necessarily have to choose between an insurance-based wealth planning structure and Madrid’s investment incentive. With appropriate structuring, the two can potentially work together.