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V1485-22 21 June 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · gastos de defensa jurídica

Legal defence costs deductible from employment income cannot be offset against capital gains from legal costs awarded

A taxpayer inquired about the taxation of legal costs received after winning a labour lawsuit. The DGT clarified that a court order for costs constitutes a capital gain; however, legal defence expenses that have already been deducted from employment income cannot be deducted from this gain.

The question raised

Impact on Personal Income Tax (IRPF) of the aforementioned legal costs.

The DGT's ruling

The award of legal costs constitutes a capital gain for the prevailing party due to its restorative nature. The litigant may deduct from the amount received the expenses incurred in the litigation, up to a limit equal to the amount received. However, if the legal defense expenses have already been deducted from the gross employment income, said amount may not be deducted again to determine the capital gain.

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