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V0720-22 1 April 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Personal injury compensation agreed via judicial settlement may be exempt from Income Tax

A query was raised regarding whether compensation for civil liability arising from medical negligence, agreed through a settlement and approved by judicial transaction, is exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that if the payment corresponds to personal injury and the amount is judicially recognised, the income is exempt.

The question raised

Taxation of the compensation in the Personal Income Tax (IRPF).

The DGT's ruling

For civil liability compensation to be exempt, it must correspond to personal damages (physical, psychological, or moral) and its amount must be legally or judicially recognized. The judicially recognized amount includes intermediate formulas such as judicial settlement, provided there is judicial intervention. If the medical negligence agreement is approved through judicial settlement, the amount shall be exempt.

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