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V1344-19 10 June 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
ISD · condonación de deuda

Forgiveness of a life annuity debt constitutes a gift subject to IHT and generates capital gains for Income Tax purposes

An individual wishes to waive the receipt of a life annuity due to them following a share transfer, thereby forgiving the debt owed to their children. The Directorate General for Tax (DGT) has ruled that this constitutes a gift to the children and generates a capital gain or loss for the annuitant under Personal Income Tax.

The question raised

Effects of said waiver on the Inheritance and Gift Tax and on the Personal Income Tax of the taxpayer and her children.

The DGT's ruling

The forgiveness of debt without consideration and with the intent of liberality constitutes a gift subject to Inheritance and Gift Tax, with the children being the taxable persons. For Personal Income Tax purposes, the extinction of the income generates a capital gain or loss for the annuitant based on the difference between the acquisition value of the capital and the sum of the income paid, increased by the amount of the forgiven debt. This gain shall be included in the general taxable base.

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