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V0445-24 18 March 2024 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · alta dirección

Severance pay for senior management withdrawal is exempt up to the legal limit, while lack of notice is taxable

A query was raised regarding the exemptions and irregularity reductions applicable to severance pay for the termination of senior management contracts and for lack of notice. The DGT determines that the former is partially exempt, whereas the latter is fully taxable as employment income.

The question raised

Question posed: Application to the compensation for the termination of the special senior management employment relationship and to the compensation for lack of notice, of the exemption provided in Article 7 e) of the Law and the reduction for irregularity provided in Article 18.2 of said law.

The DGT's ruling

The severance pay for withdrawal by the employer in senior management contracts is exempt up to the lesser of: the mandatory minimum amount (seven days' salary per year with a limit of six monthly payments) or 180,000 euros. The compensation for lack of notice is not severance pay, but rather has the nature of employment income and does not benefit from the exemption provided in Article 7 e) of the LIRPF. Regarding the excess of the severance pay exempt for dismissal, the reduction for irregularity under Article 18.2 of the LIRPF could apply. The compensation for lack of notice does not allow for the reduction for irregularity as it does not have a generation period exceeding two years.

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