Skip to content
Back to index
V1108-22 19 May 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · ganancia patrimonial

Compensation for poorly executed work is not taxable if it matches the repair cost

A query was raised regarding the Personal Income Tax (IRPF) treatment of a €10,000 compensation settlement reached through court proceedings for substandard workmanship. The Directorate General for Taxes (DGT) indicates that no capital gain will arise if the amount received is equal to the cost of the repairs.

The question raised

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

The DGT's ruling

The compensation constitutes a capital gain as it increases the taxpayer's assets. However, if the amount received coincides with the cost of repairing the damaged asset, no capital gain or loss shall be recognized. If there is a difference between the compensation and the repair cost, or if this assumption is not applied, the taxpayer may opt to impute the income proportionally as the collections become due if the payment is split over more than one year.

Book your free first meeting